Q1 2020 Earnings Call
The results conference call.
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And I'd like to turn the conference over to Mr., John Pelling Investor Relations Officer.
First bancorp.
Thank you went over to yourself.
Thank you be from good morning, everyone and thank you for joining first Bancorp's conference call multicast to discuss the Companys financial results for the first quarter 2020.
Joining me today from first Bancorp are really Wollman, President and Chief Executive Officer, Wendover, Hes Executive Vice President and Chief Financial Officer.
Before we begin today's call is my responsibility to inform in this call may involve certain fourth statements such as projections of revenue earnings and capital structure as well as statements on the plans and objectives of the company's business. The company. The actual results could differ materially from the forward looking statements made due to important factors as described in the company's latest SEC filings.
Company assumes no obligation to update any forward looking statements made during the call. If anyone does not already have a copy of the webcast presentation press release.
You can access them at our website, one first bank PR Dot com. Additionally, we filed a covert pandemic response investor deck on our website as well at this time I'd like to turn the call over to our CEO for really all trillium.
Thank you John.
Good morning, everyone.
Hope youre old safe and healthy.
Before going into the lead the little bit water I think when we need to this cost of the more pressing matter at hand, which is the bundled this fund they make on or customers employees and how we have managed to a lot down which will put in placing blurry glennie C.R.R. on mid March.
So we'll see equally in Florida with actually less restrictive operate the rules. So let's please move to slide five.
First of all our Hearts go what I'll do all those families impacted by by the the crises in Bulls, who many diary uneconomic standpoint.
This had been hard to do many families anite I want to take the opportunity to personally acknowledge the excellent work on my team and thank my team's unaware dedicate the frontline employees, who have been supporting our clients every day.
During this pandemic and including the General Love, though.
I have to say really no. One was really prepared for this type of event based on our recent experiences managing natural disaster, we felt prepared to watch gleefully.
I just our plans accordingly, as we learn through that process and move our teams in the right direction.
Well I can just back a couple of years, having endure they get lumpy say shown on president the mother nature events hurricanes or earthquakes.
Our team slowly learn how to respond to crises we did immediately.
We implemented remote word divided personality Dean disbursing working areas to lead me to contact.
Hey, which each other customers implement that is strictly leaning safety brought the goal.
Most recently, we implement the contact racing and began testing koby 19th destined for dollar employees that are working on premises, which very positive results actually.
I have been extremely pleased weve, our operating strain on digital readiness, our datacenters are supporting our customers on their delimitation will social distancing, we swivel improvement than our moratorium programs contacting borrowers providing certain level of automation to the process.
We also achieve what I can see a very strong performance in the rollout of the SB eight triple B program with the supported the fires Numerated platform as of yesterday, we have approval were 2500 loans in over 219 million.
Which is actually more than our fair share of the commercial in the marketing Puerto Rico and.
That that covers all the regions the rollout of the federal brought like BBB, the implementation and want to boardroom should definitely help mitigate credit quality the ratio in the short term.
We I think I want to emphasize we're entering this crises from a position of institutional strengths to really support our people clients and shareholders.
Today, you know obviously, we all remain vigilant certain markets began to early open and we have our plans in place for that.
Please move into slide six now.
Yes.
Well when we look at the results obviously results were impacted by the low down a which was first initiating Puerto Rico, and SCR and any clarity as I mentioned.
Obviously, the fact that we implement that Cecil, which Orlando will cover in greater detail.
In spite of that we generate some net income was $2.3 million or once in a share and when you look at the reserve build of almost $60 million that driven by defect of the deteriorated economic forecast on the carve it.
Also as important to highlight the loan origination was disrupted door deals a quarter.
The origination reach over 800 million, even though we actually start they were very strong pipeline.
The loan portfolio grew slightly 9.3, mainly on driven by commercial and construction in Florida and consumer the Puerto Rico offset by our our strategy to reduce the residual portfolio.
Hey.
During the last two weeks in all those that was very limited origination the was halted in most of the products were not closing mortgages in Puerto Rico is no auto sales are taking place all the auto lending a mortgage volumes are are not bresson I'll talk about other little bit more later mph remained relatively flat dips.
Yes, its grew 91 meal and they actually can do to grow this quarter.
The driven by primarily increasing Puerto Rico and reductions in slight reduction simpler and easier.
Again, I think the bottom line is yes, there was nine the results, but the main message here is that we really would feel we're really well prepared to under the cycle.
We have significant experience managing crises and we're entering this crisis remain a position of strength. Our capitals are among the highest in the in anybody in the country.
Our research coverage, both Cecil RM also the highest of any bank. So so we are up there. We've we've with a lot of capital of research to support the crisis.
We generated pre provision income a little bit above 68 million this quarter and this along with the strong capital reserve.
Supports our current dividend.
So, let let's talk about a quarter it'll be more in places like seven a.
I want to covered loan originations because it was really good quarter. It was coming out a great pace I have to say.
With a very solid pipeline, obviously you know the last two weeks are always importantly in every quarter for for closings.
The the deeper recon Sci rules are straight.
No mortgage closings in auto sales and limited commercial activity, mostly focus on BBB.
In Florida, they are less restrictive so we continue to remain mortgages.
And some commercial activity there was actually pending closing and obviously BPP loans.
Great.
When you look at enrolled for wanting to a second quarter, well I think b b. The reopening timelines will be fine when this volumes come back to the table. We cannot give you a specific guidance on that but we'll keep you up to date us as us reopening timelines are our curves are.
We signed were learning from from the outside from China from other market, what's happened what should happen in reopening in a different vinyl businesses.
We continue to monitor renewals, we continue to support growth we will be lines.
The and the USPI actually announced reopening next week.
We are all waiting for the announcement of update from the Puerto Rico warm and actually happening in the next couple of date to see.
There is there's a high expectation on the private sector that Puerto Rico reopens.
And put some flexibility on the loved on rules, sometimes early next week.
Additionally, I'm not surprisingly, we also expedient reduced volumes.
The in 88.
Deal as they relate DH credit cards, obviously internet on more while our are increasing.
And most likely this continue again on did our markets gradually begin to two open again.
I want to colors on Greg quality matters a.
Definitely this time around.
The different due to prior crises from a great standpoint, there while we go see a strong mitigants in place for.
For the next 90 280 days.
A their support that Vidacare AD supported by that we'll have to guidance on what our volumes and also some local Puerto Rico incentive so.
So I think.
We learned a lot from prior experiences a on crises. So we gather theorem renal understanding on efficiency on the moratorium process.
We immediately began in wired contacting our borrowers.
And I'd like to their situation on implementing the broader than we have done a lot.
We'll take my team for all these therefore, we have analyze every every large model where.
We have done it already the consumer portfolios as two of our selves yesterday without over really brought to 38% of their portfolio approximately $3.5 billion and we have approved.
2500, 76 as of yesterday.
Paycheck rotation program to over $290 million highlight I want to say, 90% of these loans.
Our in amounts below 250063% and in our minds below 50000, so where are we really supporting their small small segment.
Today, we continue to set them applications on the funds are available that SBK. So so this will continue you know we monitoring everyday.
When funds will run outboard obviously, there are some obligation that we're still getting even if it's a late stage for some customer are reacting now to the availability of the broader.
We feel our borrowers and credit quality should be supported by by this Proto labs in the near term.
In addition, I just want to highlight in addition to the federal stimulus package.
It's important to know that opportunity will remain on the fiscal bore allocate that approximately 900, mainly.
To stimulate the economy and support those impacted by the pandemic. So when you add all those three large initiatives there should be some some positive meeting on here.
Now I'm going to on the gold Orlando to covered the financial details on we'll we'll come back for question later, Thank you all.
Good morning, everyone as Aurelio.
I mentioned, we generated 2.3 million of net income this quarter, which is a one cents per share that compares with 36.4 million or 16 cents or chair in the fourth quarter.
We did have some.
Several unusual items and all quarters, but have.
I remember from last quarter, the expenses associated with the transaction.
Resulted in an on non-GAAP adjusted net income of 42.8 million or 19 cents a chair.
He also made reference with pretax pre provision of 68 million, which compared to 72 million last quarter.
This quarter results include two two large items from one an 8.2 million tax exempt gain on the sale of securities that improve earnings per share basically by four cents.
And we had our reserve build.
For loans and debt securities of 59.8 million driven by the effect of the of the current pandemic.
On.
On Moody's forecasted economic scenarios.
This reserve build had an after tax impact of 39.8 million, which is a.
Proximately 18 cents a chair for the quarter.
Important for this quarter, what is the adoption of seasonal.
Which as you know its revenue accounting rules for expected credit Ross losses, and when we talk our credit losses.
Important to clarify that it includes a loan losses on loans. It includes on losses on unfunded commitments as well as.
As we made losses on on debt Securities.
As of January 1st we recorded our regional allowance for overall credit losses of 93 million open adoption of the obvious Cecil standard.
For this quarter that provision the total provision and there are being 77 point threemillion.
Which includes the reserve build I, just made reference to 59.8 million.
And approximately 17 and a half million, which is basically cover charge offs for the quarter and it would have been closer to what we think under normal economic scenario would have been the reserve the provision for for the quarter.
This provision calculations are based on on Moody's economic reactions I as I mentioned.
That are the ones that we use to for the reasonable unsupportable time frames.
Return on Supportable timeframe.
Yes, it's a couple of two years in Puerto Rico, and and four years in employer market.
Well take up and then we revert to historical losses.
And on the projection to incorporate that any impact.
Both of the pandemic as well as the economic stimulus program is still cumulative on on macroeconomic variables, which are the key to determine expected losses.
Overall this is allowance as of March.
Stands at 308 million that includes.
283 million related to loans about 6 million related to unfunded commitments and I were 10 million related to debt securities.
The loan component the allowance for credit losses on loans represent 3.14% of loans at quarter end.
Which is significantly grown from the 172 allowance we had as of December.
In terms of non interest income.
[music].
I'm sorry in terms of net interest income for the first quarter. We are a decrease of one point threemillion.
The among their net interest income for the quarter with 138.6 million, which compares to 139 nine for the last quarter.
And is this reduction it's one one less day in the quarter blows the impact of the repricing, mostly on the variable radio commercial loan.
During the course the quarter.
One day for also in the quarter represent approximately $900000 in impacting net interest income.
This quarter, we need to have some growth.
Margin stood at 463 compared to 470 in the fourth quarter 2018.
Again, lower the lower interest rate environment, and the number of trade we auctions.
Going forward I feel a bit difficult to estimate we expect some decrease as a full effect of the rates it's reflected in the second quarter.
Moratoriums on low customer should slow down reductions on the size of the portfolio.
But in reality there is a component of auto radio made reference to when we open when Puerto Rico, reopens, and what's going to happen with some of the higher yielding consumer portfolios that commentary.
Into the balance sheet.
Overall, we continue to work on improving our cost of funds.
Interest cost on deposit accounts.
Have been adjusted on all categories Joiner overall reaction of six basis points for the quarter.
Time deposits, where represent 40% of interest bearing deposits.
Adjustments on this product take longer.
To show since it depends on on the maturities over the time deposits.
In the quarter, we've also path.
Lower cost of funding such as we buy discount window.
Just as a way of passing the lines and and waiting for its own stability on market rate.
We all saw disruptions on how federal home loan bank advances went up and down in the quarter welcome broker Cds. So there's been some disruption grew up throughout the year.
Latter part of it over the quarter.
From a liquidity perspective, we have really high levels of liquidity catch on for liquid securities represent about 75% of assets.
And we expect to continue to have comfortable liquidity levels based on the inflow phones from the local and federal stimulus package that we're seeing.
If we moved to non interest income.
Non interest income was up 30 point was 30.2 million which is.
Of 5.8 million from last quarter. This this is.
Few major components, the 8.2 million tactics and again, we had under federal Securities.
The during the quarter, we sold our at the end of the quarter reality with with the sharp reduction in rate. We had a portion of the portfolio, we felt that it subject to significant prepayment risk.
We decided to sell part of that portfolio. So we ended up selling over 276 million of available for sale Asia US agency MBS that we had in the portfolio.
Also in the quarter, we had an increase of two or 2.7 million in insurance income mostly was related to the seat on a contingent commission will receive in the first quarter of each year based on their volumes that.
Where produce.
Prior years.
We did see however, it somebody auctions towards the end of the quarter on on the lower volume of originations of mortgage auto and so.
Which ends up being some some insurance income component associated with it.
Transaction fee income as Aurelio mentioned from credit cards debit card Pos.
All the decrease and we heard we saw our fee based on on all those components come down by 1.3 million part of it as seasonal.
There's always some reduction in the first quarter, but in reality.
Disruption so from the quarantined analog downs were on non essential business, where we are large on this on this category.
Import and remember that last quarter, we did realize at 2.1 million gate on the sale of over nonaccrual commercial mortgage loans. So thats part of the the variance on the other than the other side.
In terms of expenses noninterest expenses are amounted to 92.2 million, which is 10 million lower than last quarter.
Primarily that decrease in merger and restructuring costs in connection with the pending acquisition of Santander, We attained point 8 million last quarter, which included advisory fees legal valuation and a number of our components on also included 3.4 million related.
To a voluntary separation program, we offered to two eligible employees will first bank.
We also saw a 2 million decreasing Oreo expenses.
Primarily of wanting to have mainly related to write downs on the value of oreos.
Employee.
Compensation and benefit expenses grew 2 million.
Mostly driven by higher seasonal payroll taxes, and Chris was bonds that are accrued as in the first quarter.
Partially offset by one less day in the quarter.
At this point where.
Hi, everyone else, it's we're doing full reassessment of of all expense line items.
To start reducing all discretionary spending in line with business volume adjustments that could happen.
So we're ready to act depending on how we see the volume estimates that we can originate.
In terms of asset quality nonperforming remained relatively flat.
It was.
Only a 400000 dollar increase in the quarter to 317.8 million as of March.
Nonaccrual loans increased a bit more by 1.6 it's.
Reality, we had 3.4, increasing on nonaccrual consumer loans, mostly auto.
Keep in mind the portfolio. It's also.
Growing a lot over the last.
Couple of years.
And now we had a decrease of 3.3 million in in commercial construction non accruals, primarily collection of 3.1 million that we we actually been the first quarter.
So Daniel mentioned, we have been implementing moratoriums, two loans that are where current or less than 89 days past due.
Depending on fiber portfolio migration to nonperforming on the second quarter would come from those loans, mostly from loans that did not meet that criteria for moratoriums are all were not considered to form our variable based on financial reasons.
But again there is always there's.
Percentage of the loans that continue to make payments. So if someone stops could affect also non performing better we don't expect big changes on the second quarter related to two this category.
Same thing for charge offs charge off for the quarter were 1.3 million lower than last quarter.
[music].
78 basis points on on average loans and.
We don't expect significant changes from the segments was.
As we have moratoriums in place covering basically all the second quarter.
At this time I'd like to open the call for questions.
Thank you Sir.
We will now begin the question and answer session.
A question you know Darden one on your telephone keypad.
If you're using a speaker phone.
Please pick up the on the floor back into queue.
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At this time Lincoln Park momentarily to assemble lateral.
Okay.
We have a first question from the line of the Banff gondola from Bank of America.
Good morning.
Good morning rain.
So I guess just in terms of on the.
Well behaved.
Let's start with debt during the quarter.
I guess about 3.2% Juan.
Just couple of quarters, even standpoint, Orlando as you can talk about.
If the loss rates that you expedience toward the last 510 years.
To a much higher loss number than you would have otherwise.
Okay.
Relative to what you would otherwise expect it can just talk to that it comes out.
The more aspects that might have led to that result, Bill and secondly, Hello again, just talk about just how did this compared when you look at our Youre all aware.
Hi, and CRD relative to the heidrick in previous crises that we've had from trauma balance sheet. The capacity of these borrowers and the ability of the kind of just.
Navigate to this.
Okay, let's start.
With the calculation as you know up we implemented so our seasonal might argue takes into account.
As required by season, what were his color reason, our unsupportable timeframe in Puerto Rico, we have we have define that as two years, because we feel that the economy in Puerto Rico has been very difficult to predict over a longer timeframe, so up using using that two years it.
Something that we can feel comfortable on how projections are made we use.
Moodys for that calculation and and web Moody's estimated same impact of macroeconomic variables that are key forward to different portfolios.
The key once meaning something like our unemployment its key.
How's price index is key we see.
Yes.
Impact population and things like that but no unemployment and and.
NHP IRS all the key ones. After two years, then we will.
Revert to two what it's our historical lows components.
And and for that.
We use a much higher than youre.
Great that out what we see on some of these components in Puerto Rico today.
Like unemployment, it's a good examples we revert to numbers that are were above the 12% unemployment rates.
So.
The economic factors.
That are on the reason I will unsupportable change.
By significant amounts from what we had as of the another here when we run the VCSEL estimates for day one accounting.
There recently the reverse on time frames would be sort of seminar because we're going to those historical losses that again at a much higher than what we have that so when they combine.
Those two components on how they change.
It impacts the numbers keep in mind that.
Moody's is assuming it's estimating.
We are that.
The immediate impact on unemployment would be large over the first one or two quarters, and then sorry coming down so those kind of impacts new do have immediate calculation impact on the estimated losses.
What would happen with commercial.
Portfolios the last time, the commercial business handled very well be they.
Thank you again, which is the most recent one.
They were able to two managed reopening the operation in a very reasonable timeframe somebody had the reserves set of the damage as they had on the on the.
On resulting from the here again, either were covered by insurance or we're not that large so they manage well.
The key Lucky question here its a.
What would be reopening date, and what kind of implication it would have been different business sectors.
If you have.
If you go to the other presentation. In particular, we did include in there are a little bit of the breakdown a breakdown of the of the portfolio. The commercial portfolio by major industries. So that you can see ahead, what we have the the challenge now is trying to assess that reopening and the impact that could have on on the bit under.
Businesses clearly when we when we run the the diesel calculations you could see that some of these some of the industry that we mentioned in the and there is in the press release.
We're carrying apart a part of the of the of the increasing the allowance.
Transportation for example that.
Meaning a bit of all of our car rentals.
Airlines Ana and some some of those kind of industries.
I don't on retails on retail real estate, meaning shopping centers, mostly so those kind of industries, we are expecting higher impact at the beginning and that's reflected on on the estimated loss calculations.
Okay. So that you have a second part of the questions about 500 to correctly you want to me to comment on on how this compares to the buses on Mario just we recognize that you just just talk about so it feels like there's been significant stimulus for the quarter eco both from a federal level and.
Finally, how significant is that in terms of.
Reaching some of this time period of to lock down if you can talk to that.
Okay.
I'm going to comparable Maria a bit because remember we did the money.
We did a research provision of about $70 million that time, and we base on on actually expect a recovery curves, although refilling industries, while the impact in the short term what happened in the cycle next quarter next quarter.
The proceeds with the here again, it was easy to predict reopening curve because it was based on damages analytical they come in upcoming Josh.
Have a little bit more.
Expectational zone, when things will going back to normal and we actually assume.
In certain sectors were going to take a year because of the size of the reconstruction.
No there was going to be no impact on in others.
Improving sales right away. So here is placed.
A little bit similar obviously conditions are different.
And you know in the store we didn't have we have very limited support for example, we were not able to start immediately will moderate audience. It took about a month largely put things into effect here, we start to them on March 16, because we already had the problems regulatory guidance came out a.
Then the occurs at actually provided some additional flexibility Ltd. Ours. So there are a lot more tools today than we had at the point on the storm. So while we believe that's going to have it.
You know, it's going to be great mitigants to short term deterioration because you know large numbers of borrower Darren close our op requested amount of volumes.
And this time is probably not only not only 90 days if if the closing get extended or the recovery curve are later, we're going to have the flexibility to all probably six months or 180 days or in some cases, you have all that alternative to restructure the loans and they don't become DDR. So we want.
Well, we have more what I want to say, we have more tools to mitigate obviously the cash flow coming from the programs.
A which its personality business.
It's also significant obviously doing the reaction we had payments from insurance companies will have that now, but what are the annual there. They are we doing to us to re ourselves uniting the second quarter is going to be key it continued to work with every borrower understand.
What else, we need to do to continue supporting them and.
Apply the reopening curves are they are defined I think we're all learning everyday you know how China is behaving, which is our heading in the process or how all the orders date in the U.S are behaving on how other industries I behaving.
So so there's a lot of moving parts there are driven by reopening, but I think we have enough you know enough meeting on for the next 90 to 280 days to to basically to pull our clients. Even if they are they are working on on would limit.
Good on limited operating conditions so.
Did that answer your question.
Alright, thanks for taking my questions.
Thank you.
We have next question comes lineup Dan Manav on key go ahead and good. Please go ahead.
Hi, Good morning, guys wondering one.
Well I, just I'm doing well how are you.
Very well very well.
I just had a question on.
The Santander acquisition there was some language in the press release that you thought it was unlikely to close by the middle of QQ 20, maybe and I realize that you can't give us too much detail but.
Could you describe the process right now given the warrantees.
Would you would you say the project is.
Not moving forward or just kind of moving forward, but but at a slower pace given quarantining and adds as the second part of that I, if I recall correctly from the filing documents you guys had 12 months from the effective date back in October to close the deal is that correct and are there any.
Provisions to extend that if it would be close by then.
Yes, I'll first question definitely as we said I think our same any fairly clear.
While we can say about that assumption, you're taking into account you know what's happening with a pandemic and which we're working to through request from for the different regulators are looking on the deal you know we have announced a deep when we announced in October we provide an estimated closing date closing time of middle.
Plenty plenty middle 2020, so what we're saying to the marketplace you know we see that.
At this stage you know on likely because obviously, yes people are working with the pace of progress is different. So so that does the answer to the first question the cycle. The answer the second question, obviously they contract has.
A lot of language is a public document.
And if I remember correctly, yes expires in but Theres, a 90 day process to extend in 90 days close to extent you know there's a lot of other elements in the agreement that I'm going to you know discussing the call Bob I think the agreement, it's pretty clear how broad.
Does that thermae, how MPS had excluded how they are things that that that after the closing date whenever that maybe.
Okay.
Okay, great. Thank you and Orlando when when we last spoke I think you said that.
Thanks, Eni trends, we're we're kind of tracking the asset sensitivity stimulation state that you had put out in the K is that still the case.
Yes, the only thing is that I would say set up some of it it's already happening remember that the K was based on December 30, Onest information.
So some of it is already happening as rates have come down significantly.
The only challenge to those numbers will be on the forward looking kind of.
Growth scenario.
Depending on on what happens with Reopenings and when we can.
It's going to go back to originating the normal level as Aurelio mentioned, the lock down in Puerto Rico.
They did shut down the door on on loans on most loans originations so.
So we.
We don't know once that that's going to be reopened and the second thing it up so it all depends a bit on some of the businesses.
So there is another component coming in other than rates that we need we need to try to Wesley made here.
Which is a challenge that at this point.
Okay, and then just lastly, I think we all kind of look back to the last crisis that happy to take that that's what's going to happen again, but maybe a really are you just tell us what youve done to eliminate some of the soft spots in the portfolio that may have help or hurt.
The peaks during the last crisis, and how you try to strengthen up the resiliency of the portfolio for for the future.
Well you know you can go up back to you know we had higher levels of MP Ace backing in June 2017 before the loss.
Crisis.
We have a good buys on table in the other presentation that talks about the prior financial crises, so significantly improve our risk profile.
While the other portfolio not only the reserves on the capital, but we're really the the diversification of the book across the regions across different lineup businesses I'm proud of we have a much model construction portfolio.
We have less a broad key relationships also so obviously you know like it is a better risk profile from any of the prior comparisons.
And if you take the plenty 19 end of year, you know asset quality metrics and you go back to any other prior periods, even delinquency levels are the lowest so so we're starting in either with a great strength.
On on both sides of the of the equation. The other thing I would add Glenn its remember that in back in 2008, and so the prices on the market what really high.
So there is significant implication to loan to values.
As we adjusted policies, where origination since then and based on the market continue reduction B. The reality is a loan to values I had a much better place a day where.
After everything started happening.
2008 recession.
That improves their positioning on some of the CRL portfolios and again I'll tell you mentioned the the fact that we have smaller construction portfolio, especially in residential.
Construction, so that data that improves a lot or where we stand as compared to two prior cycles.
Great. Thanks for taking my questions.
Thank you.
We have next question from the lineup Alex wonders from I protons uptick.
Hey, good morning, guys good morning Onyx.
[noise] a couple of questions.
Back to the Santander transaction and one of the things if I remember correctly about that deal that was kind of interesting is that you guys are not acquiring any npls from Santander. So I'm. Just wondering if you can kind of help us put in context, but then the context of what's going on today with loan modifications going on in in Canada.
Whether or not their policies are identical to your policies in terms of who gets modified and sort of what that loan looks like and then whether or not you think that.
Potentially the delay of the transaction could actually wind up you know if there are some credits that maybe you were caught GGR tottering that.
Why that benefiting you guys in a little bit Hello away.
Yes, that's reality will we're not there yet we have to either there's a lot of things that we continue to two goals here looking to board. We just you will focus on what's what we have at hand today. So so there's different language in the agreement that you're going to review and what are the.
Revenues for conditions like the one you mentioned.
Yes, the agreement had wording on they have to continue to fall. There are there always is they had added onto agreement they have to be consistent any deviations up too.
To be spectrum. So there there are things like that data at the end would be sort of a normal business moratoriums are so are difficult to judge at this point.
Okay, but.
Based on how they didn't have to hurricane Maria you've had some sense or what their criteria might be and therefore, there should be no changes in that that should be consistent you're comfortable that.
Holding true.
Yeah. We next question yeah.
Yep.
Next question back to the reserves and see so you know you talked a little bit Orlando about sort of the shape of.
What's going to happen.
Going forward, but.
First off you know it seems to me like unemployment is a much bigger input to the reserve or to the seats or model down in Puerto Rico relative to GDP on the island.
First off is that correct.
Secondly, can you help us just sort of think around you know the different outcomes for the provision for the second quarter, just kind of what would have to change in the pizza model for that provision to go to be similar to what we saw this quarter or is it fair expectation industry down meaningfully or is there.
An area, where it actually increase from here.
The team came on the first question.
Okay.
Yes, yes unemployment is one of the critical components in the Puerto Rico market. That's that's a very obvious.
We different portfolios have different variables that it's not only one.
Some of the key once our as I mention unemployment and H.B. I bought all others affect different parts of the portfolio remember that some of it is broken down like you take CR read it takes like as a component by industry and sector on it.
Tailored to each market. So so as you know the fact that you taking indicates of Puerto Rico the projection is that.
They were projecting on November.
We population reduction towards the end of 2021 that has slowed down significantly or stayed flat. So that those component change the mix of some of the variables, but clearly you know the unemployment one it's going up.
And the assumption is that it goes up.
On a in.
In the first quarter, it's going to belong in all Puerto Rico as well according to market.
But it's also it's also want to start coming down.
Slowly second quarter staying there HM.
Basically through mid 2021 at those levels, and then starts coming down a little bit more going going after mid 2021.
So all those source are the ones that are leading to seize these changes when when you have remember it's not the absolute number but it's a change and the change it negatively immediately so that has had a negative impact immediately.
So that's the relevance of how the the the movement on on the estimated macroeconomic.
Happens.
Second quarter I mean, it's.
There are number of factors clearly number one would be what is the projected scenario, we assume and if we assume that break that as an Oreo movement is exactly the same after this one.
That a lot has to do with levels of originations and level of repayments.
Keep in mind, if when you look at at this component the complexity of seasonally that if I get payments on on loans, let's take a portfolio like mortgage if I get payments on loans that are seats on loans, you know that I've been around 478 years.
Those loans carry an estimated reserves, which is smaller because although the seasonality on their their timeframe that those loans have left as part of the estimate while a new loan you know still have the full estimated life, even though it's a new loan with new policies has less risk.
But it has longer life so.
Originations are down.
And factors would remain the same and we don't see significant changes in charge of then your statement is correct, but there's so many why was that are really difficult at this point Alex.
If you and the first quarter.
We were estimating that the allowance would've been closer to charge offs, which is what were based on based on on the preliminary.
Economic scenarios that were out there.
Obviously, the everything changed.
So.
No changes to economic scenarios of smaller portfolio because of payment with a lot lower level of origination should result in reductions in in provisioning on Oprah, we certainly think could it could technically be.
Any change in the makes because we expect to originate I, we don't expect to be shut down for the full quarter.
Then it would change a bit those those variables, but clearly.
I would see I would say say that the biggest factories, whether we feel that the economic scenario is going to get much worse.
Or stayed the same or get better.
If it's much worse, then then you know which is not what.
We all think at this point.
It could change this this mix.
Okay. That's helpful. And then just final question for me.
Just think through the.
The loan balances in kind of you called out the TPP for the second quarter.
Loan originations are essentially halted in Puerto Rico, you now for the last month and a half.
How should we think about loan balances kind of the Navy could then to contracts that sort of the pace of amortization. Some of your portfolio is just so we can certainly on the same page with that.
Yeah, I think you know, there's there's positive or negative here in one you have to go theater the level of more volumes.
Basically we will not be receiving repayments so loan balances will stay.
Right now is close to 40% on the portfolio. So that that's one element that that mitigates. The read the contraction second element is floaty that we'll continue to two selectivity.
And our obviously not at the same level so prior quarters, but there is loan activity.
Obviously, you know I know the BBB into low yield long, but we are ready we already exceeded 320, mainly on them, we probably will get too to create the you know by the end of the or by by somewhere So Monday another month for me.
Okay, and then you know the reopening days that we ideals reopened Monday, obviously, it's going to be trying to determine what level recoveries.
Well I don't know recovery, we estimate that bases over in Asia, We don't have a final answer on that.
And adding Puerto Rico, we expect that maintenance like the mortgage business and some other commercial activity be reopened partially you know next week.
Oh, no later than May 15, Daddy's called the private industry is pushing for bought board obviously, the mortgage based and had no reasons to be to be close down at this stage.
So so.
Auto lending is another component dealers are actively.
Pushing for for being able to reopen their operating most of the states.
The non Puerto Rico. So so it's a very difficult to estimate to be honest with you because it depends on reopening and then recovery curve of the of the volumes.
Oh.
Okay understood and then just final question for me on the PPP 380, 320 to potentially 380 that you alluded to is that down is there a way that kind of break out the weighted average fee that would be associated with those loans based on their loan sizes.
And we don't have it available, but also for any time, we will update investor deck with it.
We you know that sale within within receiving obligations A. I have to say that obviously first round was you know obviously more more sophisticated borrowers move ahead or on it.
And then you'll get the I think a smaller basins are now the leap.
Hopefully fonts continue but we our average loan it is fairly granular a 63% below 50000.
So all of the alone. So when you when you look at the focuses on the lower end no the higher end at least in our experience.
We we would continue to receive applications on two fronts our way level.
Yeah.
Obviously, we can estimated we're we're when it as part of it the only challenge them at this point Alex into its not only the estimated fee on the whole thing. It's a matter of also the life of the loan.
Yes, he made a life alone because one thing, it's having a fee spread out over two years, one thing thing, it's a p. over one year in terms of automated profitability results.
So that's that's the other challenge if that were trying to assess both components, how long would it take for customers to come back with all the information.
We know that obviously the loan doesn't pay interest for the first six months. So you know you already have sort of a six month number there that that should be taken into account. So those two are the ones. We're trying to to combine to come up with what we expected life and then what the expected reclamation under Pete's.
And what it does two to.
To the deal on those loans.
Yeah, Okay, and then just you know enter that points in Puerto Rico, where obviously the program is very powerful but also unemployment.
The additional unemployment benefits provided by the is the cares stimulus bill might go a little bit farther in a place like Puerto Rico do you expect.
The weighted average life, but these things to be kind of on the shorter side the way on the banks you know in our elsewhere in the country are are talking or do you think that maybe these loans.
Higher percentage on that actually might just be two year, 1% loans.
I think I think you know obviously remember the for you our expectations of this loans is high.
I will say between 60, and an 80% 75% A.A. So what is remain there. If it is is yet to be determined once we start processing you know the second phase of the problem, which is a forgiveness part.
That's why it make it's a difficult because this is Dan is when you're going to know exactly what what could be that remain in terms of this loan.
I My guess is that everyone that.
That is going for the GAAP forgivable component.
It's going to fight or not to Sarbane anything after six months.
Because otherwise they don't need to start making some payments.
So that would would Jordan some of those but the other ones the ones that use it for something else our door or the portion of the component as.
Which would stay there for a longer term the two years probably.
Okay. Thanks for taking my questions.
Thanks, Alex.
Thank you Sir.
This concludes our question and answer session. That's now like to turn the conference back over to John Pelling for any closing remarks overview Kelly.
Thank you be come on the Investor from are scheduled to attend the Deutsche Bank Conference on May 26, and Sandler, whereas hosting our during our Investor tour to Puerto Rico on June 11, we'll be doing those telephonically.
I want to thank you for your continued support we look forward to sing all of you again when the markets. We open at this point will conclude our cost. Thank you.
Thank you Sir.
Since calls now concluded.
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