Q1 2020 Earnings Call
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Good morning, and thank you for joining a with GE Bancorp's Conference call. My name is Chris Dell and I'll be your operator today.
Our speakers are Jose rough feel Fernandes, President Chief Executive Officer, and Vice Chairman and Maritza, Iris Mindy Executive Vice President and Chief Financial Officer.
A presentation accompanies today's remarks, it can be found on the Investor Relations Web site on the home page in the what's new box or on the webcast presentation and other files page. This call may feature certain forward looking statements about.
Management goals plans and expectations. These statements are subject to risks and results may differ materially from those currently anticipated.
We disclaim any obligation to update information disclosed in this call as a result up developments that occur afterwards.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. It is my pleasure to turn the call over to Mr. Fernandez.
Good morning.
Thank you for joining on.
I hope all parties with them and their families are safe and healthy.
Stuart on page three talking about <unk> nine PM endemic situation and then we'll get to the numbers.
The rapid spread around the world well the girl nobody is affecting everyone personally I'm financially.
Our hope heart, Google <unk> law loved one or two or suffering monitoring.
Important illegal the spread of covered my team has not who knows about another areas of the world.
Well go to go Governor one Bill Oscar I know this <unk> group you early March to make important <unk>. The first jurisdiction in the United States to implement such measures.
Oh, so somebody there were lived on boarding hunger both of these cases and 85 there.
These numbers are based on an extremely low level of dusting embarked the lowest testing for 100000 hobby from all 50 states.
The governor is about 2% the plan for slowly reopening the economy.
It is critical so I'll jump them do we open is gone under the strict knowledgeable advice.
R&D and doctors to assure the safety and health overall.
Thankfully so for every one on or Gi and Oriental article greed.
Our priority going into the pandemic was to keep our employees safe well, maintaining or nimble and proactive approach to business.
In doing so we enter the crisis from a position of strength.
We remain well capitalized on highly liquid.
Well the C.E.D. one ratio over 11 points, 67%.
More than $1.6 billion of Gosh unencumbered securities.
This is not the first time. This management team has faced unsuccessfully dealt with externally created crisis situations coming out of this one as we have done in the past our goal is to maintain strong copy belong liquidity. So we may continue to help customers now on said, while the inevitable recovery.
Our first quarter performance confirms the strength of our business balance sheet I'm franchise. During this critical time.
This is the direct result of the proactive on customer focused culture, we have developed our ongoing investments in technology and the effective strategies, we have put to work.
We believe wearing a strong position going forward.
In addition to closing the Scotiabank acquisition last year.
We significantly reduced higher costs non core funding and sold a large amount of nonperforming loans.
During the first quarter of this year.
We significantly increased our allowance for loan losses.
In March.
For our employees, we implemented a comprehensive program combining workforce safety technology and special benefits.
For our retail and business customers, we lounge Berryman really program.
Wave charges and fee.
An increased amount there can be withdrawn or transferred electronically.
As a result more than 50% of our employees are working remote.
We have achieved on interrupted on superior levels of service through all channels.
47 branches are open for save access to ATM.
Interactive ATM drive through or appointments.
The nine branches are closed our oil inside close shopping centers.
We have maintained employee and customer safety on social distances and clearly the investment we made early on in digital are helping customers continue to do their banking.
Our teams also worked quickly to develop new digital tools.
More than 43% of retail customers requesting forbearance have done so digitally.
Also 100% of small business requesting as be a BBB loans have applied digitally.
All of this has facilitated close close communication with our customers.
We have this has enabled us to provide the financial advice on resources they need to navigate this challenging time.
For example in the first round of PPP, we help 900 small businesses with more than 25000 employees access more than $140 million in loans.
Our deepest appreciation goes to frontline first responders on health care professionals dealing with the Corona virus.
We also want to thank our teams are all gn Oriental on the other front line.
They have done an outstanding job, helping customers on businesses manage the financial challenges during this crisis.
Please turn to page four.
We immediately experienced a pickup in technology usage by both retail and business customers starting in March I need has continued.
For example, as of the first quarter active mobile banking users on people three transactions increased 43% from the first quarter of 2017 and as of the first quarter of this year, 57% of all loan and credit card payments, we received one through digital channels as opposed to cost.
Summer mailing them or coming to branches to pay.
As I mentioned, we enhance this effort by quickly developing unique on first to market digital tools to help consumers apply for forbearance and businesses for PPP loans.
Along those same lines since mid March more than 1000 clients have use Rx existing online appointment to two conveniently scheduled meetings in branches on the under coverage 19 save conditions.
Looking at the first round of SB eight PPP program, we originated 32% of the loans in Puerto Rico, and this bears 21% of the total amount granted to Puerto Rico businesses. Our average cycle time was only five days.
We're very pleased to see these trends technology is a core part of our overall corporate strategy and we continue to look for new and innovative ways to use it to help our customers.
Now, let's turn to our results on pages five through seven of our presentation, let's start with our financial highlights on page six.
Net core revenues increased 33% that mainly reflects the significant increase in interest earning assets from the Scotia Bank acquisition on net interest income net of the effects of lower interest rates on cash and variable commercial loans.
It also reflects the much larger customer base on our banking and wealth management revenues.
Due to the Corona virus pandemic, we increased provision based on the change microeconomic scenario, we see ahead.
Noninterest expenses were also much higher primarily due to the Scotia Bank acquisition. During this critical time in order to ensure full service, we decided to postpone most of the plan Scotia Bank Gulf Coast cost savings on two there is more clarity on how the Corona virus pandemic plays out.
Partially offsetting these added costs was a gain on sale from mortgage backed securities.
The bottom line was a breakeven quarter.
Tangible book value declined slightly primarily due to day, one effect of Cecil, which I'll get to in a few minutes.
The key performance ratio will look at efficiency return on assets and return on equity all improved sequentially from the fourth quarter. When we had large merger and restructuring charges associated with the end of the year acquisition of Scotiabank, Puerto Rico.
Yes.
Looking at our operational highlights on page seven average loan balances increased 48% year over year contributing to the increasing net interest income.
This was mainly due to the acquisition.
Average core deposits, excluding brokered increased 71% year over year.
This was similarly, a result of the acquisition, but also due to an organic increase in deposits.
The overall, increasing lower cost core deposits has enabled us to reduce our costs broker Cds and borrowing balances by more than 47% year over year.
Loan generation was slightly ahead of a year ago. It should be noted the first quarter. This year was affected by a slow start because of the earthquakes.
Volume picked up nicely later in January and February mainly due to increased customer base and added capabilities from the Scotiabank acquisition.
And as expected production fell in March because of the impact of covered 19.
Loan yield at 7.01% held up well the year over year decline reflected two factors. The first is our new loan mix, which includes a larger proportion of 30 year fixed residential fixed rate residential mortgages from the Scotia Bank acquisition.
The approximately the approximate yield on this loan portfolio is in the 5% range.
The second factor was our variable rate commercial loan portfolio on a year over year basis. This portfolio experienced the full effect of the federal reserves 2019 second half rate cuts and the partially effect of the March 2020 rate cuts over 150 basis points.
Approximately 60% of our commercial loans are variable rate.
Cost of core deposits increased 14 basis points year over year before the fair value amortization for the Scotia Bank deposits as a result, net interest margin declined to four point, 94% I will like to point out that this decline includes lower yield on our cash balances asset we saw.
Both of the fed rate cost that I previously mentioned.
Please turn to page.
It's eight to review credit quality.
There was little effect in the first quarter kroner buyers. The net charge off rate was up eight basis points from a year ago. As a result of the previously reserved commercial loans.
The nonperforming loan rate was down 131 basis point from a year ago due to the Npls we sold in 2019.
Please turn to page nine.
This page provides detail on the impact of Cecil day, one and our March 31st Reserve build.
See survey, one added $39 million in allowance for non purchase deteriorated loans.
It resulted in a charge against retained earnings and capital of about $25.5 million net of taxes.
For purchase credit deteriorated loan.
We made a 51 million dollar adjustment. It is important to note that do this was made through the allowance and loan balances with no impact on capital.
At the end of the quarter, we added a 34 million dollar provision incorporating changes in our macroeconomic outlook and qualitative adjustments as a result of covered 19.
We use moodys economic scenario for Puerto Rico that incorporates covered 19 for a seasonal modeling.
The continued uncertainty regarding the severity and duration of the pandemic and its related economic effects remains and it is unclear to what extent various governmental initiatives, we'll be able to mitigate future credit losses.
This resulted in a year over year increase in our allowance of $68 million on a sequential quarter increase of $114 million.
Please turn to page 10.
Starting mid March we have been communicating even more closely with customers over what effect. The covered 19 pandemic will have under personal and business situation.
To date, approximately 30000 customers accounting for $721 million or 16.9% of our retail loan balances have been granted moratoriums.
Moratoriums are available for up to three months on interest and principal but each one is we viewed on a case by case basis.
This is as opposed to purity Maria when three months deferrals were automatically granted to all retail loans.
On the commercial side $204 million or 8.8% of a total of $2.3 billion or commercial loans have been granted deferrals and received deferral of principal and interest payments.
We have also escalated the monitoring of industrial sectors in our commercial portfolio now consider to be more economically sensitive.
That mainly consists of hotel and restaurant chain clients, which account for about $224 million or 9.7% of commercial loans.
Hospital clients, which account for $103 million or 4.5% of commercial loans and little shopping center clients, which account for about $74 million or 3.2% of commercial loans.
Please turn to page 11 to review our capital position.
As I mentioned earlier, we believe we have entered this pandemic with a strong capital position all our regulatory capital ratios increase from December 30, Onest and continue to be significantly above requirements for well capitalized institution.
Please turn to page 12.
To conclude we think we have operator, well so far in this very challenging environment operationally, we were the first and only bank in Puerto Rico to provide covered 19 related digital solutions to help consumers bank online.
We have provided uninterrupted and superior levels of service through all channels, while maintaining both employee and customer safety.
This has enabled us to keep in close communication with our clients in order to understand well their needs and provide them with the advice and resources required to navigate these challenging time.
Our digital capabilities are helping customers do their banking with ever greater ease and convenience.
Financially we are in a strong capital liquidity and reserve position.
Looking ahead, our priority is to protect our employees.
Help our customers and thereby support the communities we serve I'd like to add that the Scotia Bank operations and technology integration has continued on track we anticipate completing it over the course of this year as originally planned.
Based on our success, we anticipate continuing to invest in technology to digitize our business at a faster pace than originally planned.
Ultimately our goal is to continue to demonstrate our financial strengths operating agility and resiliency with strong risk management and build an ever stronger company for all our stakeholders.
For more than half a century, we have been there to help customers manage their finances own homes by cars build businesses protect themselves reinsurance and save and invest for retirement, we are ready to continue to help them now and we will be there for them for decades ahead.
With this we in our formal presentation. Thank you for listening operator, let's start the kuni.
At this time, if you would like to asking your question. Please press star one on your touched on sounds once again that is star one to asking audio question.
Your first question comes from the line of Alex Twerdahl with Piper Jaffray Hyper Sandler.
Thanks, Good morning.
Good morning, Alex.
Just first off I was hoping you can maybe just talk a little bit more about what's actually happening in Puerto Rico with with Covidien touched on a little bit in your prepared remarks, but no what kind of stuff for open right now and you'd kind of alluded to a.
A plan that the governor is working and we have any sort of projected timeframe for for the non essential businesses to start reopened down there as it is it too early at this point.
So Alex we've been out a very strict locked down for the better part of six weeks where the.
The Governor started as I mentioned earlier.
Very early on I think it was March 12 or 13.
And he was very strict.
People were not allow outside of their homes. After seven o'clock at night and the only businesses that were allowed to operate were essential services as they were defining the executive order to achieve.
She put into place.
Those services were.
Hospitals.
Pharmacies supermarkets, and financial services, only for payments and deposit transactions not allow not allowing financial institutions to.
To originate loans or or do.
Other type of Bob.
Transactions or businesses so.
I think.
Again from the ground and Im not assigned disciplined I think.
The fact that she started with this early on is been very good and now it's the the point in time, where she needs to start.
Considering an opening of the of the economy and it's a tricky to key issue right because it's very contagious and covered 19. So she has a medical.
Task Force and the medical Task Force published on Sunday, I think he was a.
A paper word they basically delineate how should be open and theres three phases, where they start opening a little bit.
She has not yet decided on how to proceed the business sector is.
Also there is a task force and they are also engage with the governor and.
I think there also pushing for an opening of the economy as you can imagine it's happening everywhere in the United States.
But but unfortunately here in Puerto Rico, I would say the only the only thing that I am I will be very cautious about is the testing side of it we are really the.
The jurisdiction the United States with the lowest testing per capita and and it doesn't give enough visibility on how the contagion is moving along so so I will be very cautious on we add oriental will be very cautious on on a reopening of everything simply because.
I have four Ross our people.
Come first and buy them coming first our customers are going to be.
Well served so thats a little bit of a peak on how I see things from the ground.
And I am hopeful that.
And with the.
With the early on locked down and with a discipline a process of reopening stage by stage I think as as.
Presented by the medical pass for US I think we will be.
Coming out.
On the.
The other end of the of the road in very good shape.
That's helpful and then just.
Kind of a sort of similar question just macro related this Puerto Rico get the same equal treatment as anyone else in United States and somebody's federal stimulus programs.
During the 1200 dollar stimulus check the extra $600 per week on unemployment things like that and then if I'm not mistaken Puerto Rico also has kind of a separate stimulus program can you give us some sort of details on.
End of what that includes it entails.
So yes.
As as opposed to the prior prices.
We've been on our two served under like Maria or the earthquakes.
Covered 19 is is a global crisis.
And it's hitting the United States completely so for the first time in in one of the prices that were operating here in Puerto Rico.
We are receiving the same benefits that apply to all the states in the United States. So so we're going to be receiving the federal funds as a matter of fact, we already received around $2 billion of phones that needs to be deployed and.
Theres the 1200 dollar.
A checks is also.
They haven't yet dispersed and but they're in the process and Bob So Puerto Rico will probably receive between $4 billion to $5 billion in federal funds from the covet 19 assets as of now.
The governor and the.
Fiscal supervisory board also teamed up and they they put up around $702 billion.
They had for emergency in the budget and they're also deploying it out.
Slowly, but surely and and that is also be included a as part of.
The the incentives or they are the cash that is being added to to the to the economy, while we're managing the locked down and under pandemic.
And is that 702 billion is that for small businesses are for individuals are for healthcare workers are kind of whats the the general Senator what that when it will be spent on.
Mostly for individuals may I would say healthcare workers individuals.
People that remember, Puerto Rico has a high high level of on of poverty compared to the states in the United States. So so it's a supplemental to help out certainly unemployment benefits are applied to Puerto Rico, and and then the going or the government is.
Adding to those in some way shape or fashion. So certainly the healthcare providers are being held and some small businesses also that are being affected.
Paving primarily on the healthcare site.
Great and then just as I think about the reserve methodology.
You guys have obviously been through crisis before with Hurricane Maria were you able to draw on some of that playbook for kind of obviously vcsels indifferent can orange here, but we're able to draw on that same sort of playbook.
For coming up with the reserves under the scenarios that you are again for Moody's or are there is a major differences that we should be considering.
So our.
I'll answer that high high level a but.
A certainly the experiences we've we've gone through with Maria Andy and the and the earthquakes.
They put us in in a in good shape in terms of.
Addressing the crisis from all aspects not only provisioning for it but from a financial perspective from a people perspective uncertainty from a customer perspective. So so the experiences on the two prior crisis has.
Helped us be ready for this one a now regarding the.
Provisioning they are some.
Big Big picture there are some similarities in the sense at a.
There are forbearance has been given and people are.
Locked out so when we were hearing with Maria the the the decision was to give automatic monitoring. This time around we decided to go on a case by case basis unused technology to allow clients to requests for those are air Forbearances and.
And I think.
The reasoning behind that is because.
Not all the industries are.
Yeah, furloughing or or or letting go of their employees, they're paying out salaries, particularly the the central government and the municipalities are all paying their salary. So so we took a the experience from Maria but it also adapted to the realities that we have today.
In terms of.
How to our approach it.
Great. That's on the just final question for me and I'll get back into queue is just you alluded to the Moody's forecast for Puerto Rico can you share with us what the.
With that suggests.
GDP on the island goes to in the second quarter and kind of what shape a recovery expects to sue afterwards.
Our 11, having several answer that one Alex Hi, Alex will not in Hawaii.
Well, Eric barrier before getting into the updated and like I said [laughter] very ISO go back to day, one nice thing.
Today, when we make day, one airline undersea. So we use a mixed macroeconomic outlook scenarios that studies that are moderate GDP growth with a steady unemployment in the near Tim.
Well, we updated in further data operationally, we obviously updated their microeconomic us tinnitus and applied negative GDP growth in the near same with any immediate increase in the unemployment to about 13.5, so while we see any signing media reaccelerating needed negative reaction in the short then.
And probably we will continue monitoring our we have more information to see what Skybell recall ready we will have if he will be the type of shape of.
Who diagnostic use type of sake, so so but right now initially we have.
And immediate negative impact in the GDP and unemployment right.
Can you just help us quantify a little bit of that immediate negative impact than GDP is it in the range of 10% 20, probably ask any noticeable and there is 2.5%.
Okay.
Alright, Thank you for taking my questions I'll get back into queue.
Thank you. Your next question comes from the line of Joe Gladue with Alden Securities.
Good morning.
Hi, Joe how are you good morning.
I guess.
Just one I guess first touch on a little bit of.
Some some help on me.
Net interest margin I guess, there's a lot.
Thats going on there I just wanted to start with looks like after the some of the security sales and everything.
Balance sheet had a fairly sizable cash balance on there at the ended the quarter.
Do you think in the current environment, there will be opportunities to deploy that more more profitably.
So.
So this is the way I see the.
As margin and ER and what are the the effects of let's say, having a lower net interest margin than anticipated and a first.
Wholesale funding.
Yeah.
Since we have excess core deposits from the Scotia Bank acquisition, we have an opportunity to continue to.
Huh.
Let go of the holes wholesale funding so we need to wait for the maturity of those in order for for Us too.
A.
Cancel them right.
So so thats kind of play itself out this year.
Number number two.
Certainly the drop in interest rates has affected the margin, particularly the the effects on a on the variable rate commercial loans and that.
Is something that we are a.
Dairy much focused on and then you mentioned that the high cash balances that cash balance was yielding one on a quarter. One on 30 now yielding around 10 basis points. So that that has created.
A little different scenario than what we had anticipated prior to the crisis.
Now, having said that we we think that.
At this point in time, there's known not necessarily opportunities for us to deploy that cash above and beyond the the great job, we're doing with the SB PPP program and that's on the short end, but as many married some mention on our scenarios.
Once once the.
The economy starts to reopened.
Either you or a V shape scenario will give us ample dry powder to as we always do very prudently deploy that cash and.
Put to work so I think we're in very good shape in spite of the external challenges we're in very good shape for a.
For the up expected, who knows when recovery and and deploy the cash that we have in.
Higher higher yielding assets and held the communities and the clients.
Okay. Thank you.
You mentioned that of course, the PPP program.
What are you expecting in terms of how they are the fee income from that.
Comes into income over the.
Of course of the year.
So I'm not a.
I'm not I on accounting expert, but I suspect that the fees going to be.
Part of the yield and ER and it's going to be a accounted us as part of the net interest income so.
Yes, it's a 1% low a 1% yielding with.
I think the size of the loans that.
Average size of the loans is relatively small so we'll probably get the higher.
End of the range in terms of the fees on the PPD program and.
They were in the middle of the second round and.
Early indications and show that.
We're doing more loans, while we did on the on the first round, although they probably have a lower balance.
Per loan, but we're very encouraged with the with the fee generation that we will get from there as well as the ability to.
Be able to help our customers in a very expeditious way I mean, where they were disbursing. This money in five days after it's been approved or less actually so so we're very excited I'm happy to help our clients.
And Thats kind of our perspective from the as be a program that just launched.
Okay. Thank you.
Just wondering if you could.
Give us a little outlook on.
The.
Loan production sort of bye bye.
Segment.
Just yet.
In the current environment the out.
Clearly, there's there's probably not a lot of.
Mortgage transactions going on.
I believe most of the.
Auto dealerships or are.
Not doing any business and.
Just wondering yes.
Is there any.
Uh huh or any loan segments still maintaining some some volumes.
So apart from the.
The.
The PPP loans of course, we're doing a little bit of all of.
Nothing to write home about for sure of personal loans on a little bit of auto loans that were in the pipeline before the lockdown, but.
Nothing nothing in particular too.
Two.
The significant.
So you if you think of it the second quarter, we'll have a very depressed loan production.
Given the the locked down and doing the full month of April and part of March that you already sold effects and then the full month over April and.
We are still we're still expectant on how is it going to open and and how.
Yeah.
How will that.
They play out in terms of our business generation.
No no nobody knows but we are we rather player conservatively and I think mentioned that in the remarks.
We're in very good strategic position right now, making sure that.
The first and foremost we because we call Scotia transaction in December 31st we.
We're very very good position in terms of.
Core funding and.
The clients and other opportunities.
Liquidity for sure.
But but we're also very excited with the.
Digital adoption and on how our clients because they are in their loved down their incrementally utilizing our.
Our.
Youtube platforms and.
And services.
And also how we immediately adapted to the forbearance and also the SBH program, providing them digital tools for them to also apply and in the case of.
Of the FDA program.
Run the whole program without a.
Printing a piece of paper. So so it was all digital only done and disbursed and Doug that is a differentiating factor and I'm really proud off of awards our teams have done.
Alright, alright, well. Thank you that's so for me.
Thank you Joe had a good day.
Once again to ask a question. Please press star one on your touched on phones you.
Your next question comes from the line of Glenn and now with Keith Riot Wynnewoods.
Hi, Good morning Jose Maria.
Hi, Dan how are you.
I'm doing well I hope you guys are doing well.
A couple of questions on on net interest income.
In the past coming for the schedule that had accretable yield in the the press release.
But I didn't see it how much accretion was still in that number that that you book today.
Glenn could you repeat the question we could not here you will.
Sure I'm in the past.
Included a schedule of Accretable yield.
In the press release.
How much accretion was booked in the number in the first quarter.
Okay go and that is way way.
Above my eye Q level OLED mounted sensor that one.
Yes, Hi, guys. How are you at the end Glenn and remember that now we changed the accounting legal Sofia accounting disappear and accretion with five of the of that type of accounting. So while we did have right now is a deal adjustment to the latest income I don't have the precise figures.
How much was the deal adjustment that we did for all the acquired book, but in general in spite of the idea that there's any type of loan.
Before that we help that different type of.
Segment they Sunday.
Okay. Thank you and I got on the call late I had some technology problems, but.
Could you discuss where deposit pricing was at the end of the quarter of kind of relative to where it was so the average.
Yep so.
Good point, Glenn Thank you for for bringing it up.
Throughout the.
The latter parts of the quarter, we we were very proactive in a repricing some.
Large commercial relationships and.
And now we're in the process of looking at the.
Whole retail side.
I think.
When you look at our core deposits and remember the acquisition that we closed in December 30, Onest. The A. added to that what we're seeing is not only good traction from the Scotia, former Scotia clients, they're adding deposits to to their accounts, but.
But we also see the ability to.
Two also look at those buckets and be more proactive in repricing them. So we're looking now at that side of the.
Of the equation, but we have at the end of the March quarter pretty much looked at.
Most of the commercial.
Large commercial deposits and reprice them to market.
Okay.
And on on the fee income I guess, it's always difficult to kind of estimate the fee income line after after an acquisition, but it.
It it looked like the street and and I was like we're expecting about 31 million on that line ex any security gains or anything like that and the run rate looks like it come kicking in a little bit lower was there anything special in other income that way that down or is this kind of the run rate that we should be using going forward, noting any variability in mortgage banking.
Yes, let me tell will give you some details on that yes, and Glenn and I think in general and the last two weeks ago, Mike and there were lower fees because of lower transaction I'd, probably banking service fee equivalent is probably we know what was impacted because of that also mortgage banking activity as.
The impact of the MSR valuation that came at $2 million.
Now these adjustments so that it that's why you see these figures are literally all of you estimate so at this time, we need to see how old Dillon down.
Howard will get back to our normal level of activity. So until we get that we can see that peas in a more normalized add features dialing the MSR.
Defense on the market right. So that that's why why did you see that levels not necessarily in line well what we were.
Right and just to confirm you said that was a 2 million dollar MSR write down.
And the MSR valuation.
Thank you are right okay.
And on on the tax rate.
Is that 26% that you noted in the press release, a good effective rate to use going forward given the level of securities and cash that you have now and the tax exempt income.
Yes.
Okay, all right well. Thank you for your time have a great that.
You too.
Your next question comes from the line of Alex Twerdahl with Piper Sandler.
Hey, good morning, Thanks for taking my follow ups. Just first wanted to go back to where you said about the assumptions in the reserve rights of the decline of 2.5% on GDP is that I assume that's specific to Puerto Rico is that because.
The economy is not expected to go down or I guess that the pull backs I suppose expected to be as bad in Puerto Rico or is that just because Puerto Rico's already 13 years into a recession.
And there's not much more to go down or I can you just kind of but then to context for us.
So if I understand your question correctly.
Alex you're saying on the.
Moody's Puerto Rico.
Scenario, when we're seeing a contraction of 2.5% that is.
A 2.5% annualized.
And what the impact on a quarterly basis for the next couple of quarters. So it's like a real drop from Paul two and a half too I'm just using numbers it plus two and a half to minus two and a half so she's a drop of 5% annualize immediately.
Due to the call it 90.
Okay.
I was just.
We have some banks in the main lands that are reporting or I guess using scenarios are like down like 10% to 20%. So just kind of want to make sure I understand the context properly.
Yeah.
And then as you kind of look at some of the higher risk portfolio is that you disclosed in the in the presentation are you able to give us some characteristics on like the hospitality and restaurants in terms of LTV is.
Things like that.
You want details on the Ltvs on those.
On the hotels and restaurants.
Debt service coverage anything anything that can I get up gets a little bit more comfortable with the standing says those high risk categories.
On average I would say hope hospitality is around 70% LTV.
Okay and would've shopping center.
Shopping shopping centers more or less the thing.
There there is some that are lower ltvs, because they've been longer in the books, but.
On average I would say around the 70 handle.
Okay.
And hospitals the same.
That said area.
Hospital wholesale I don't I don't have I mean, I hear the hospitals of my second.
Bring that number two later.
Okay sounds good and then in the O.G. USA the growth this quarter that we saw can you just remind us kind of what kinds along as those are in sort of how the underwriting works and everything just because it's been a few quarters since we've seen that participations, there and just obviously the world the stage of on the last couple of weeks.
Well these are small.
Some of them are as the loans some some of them at proportional day of the origination is a small commercial loans as be a guaranteed some of them are they.
Great SB loans that are we participate on and.
We feel that these are not necessarily high risk industries, given the the covered 19.
And again the production that you see there is prior to two all the the pandemic.
So what percentage would be USDA guaranteed.
I don't have it off the top of my head, but we can give you the details of line.
Okay.
Would be a at high enough percentage to stick a little more comfortable on SP. I believe is making payments on a lot of those launches next atlas from that mistaken.
Okay, and then you know just asking the question on the margin kind of two parts. One you kinda talk about the higher cash balances and you know those in say elevated for little bit of time until longest or picks back up and until you have some of the borrowings to come due one can you give us the schedule on when those borrowings are going to come do certain can think about.
Right.
Funding cost coming down later in the year, and then to just kind of with all the moving parts.
What's the right starting point to think about for the margin going into the second quarter, considering what's happened to LIBOR or prime and prime everything during the first quarter.
So.
We're not we're not giving any guidance on the margin Alex but I'll, let married so talk to you about the maturity of the hole on the analyst.
Alex if it's important to note is that we have begun also bouncing Glenn broken before.
Hey, if this then the earlier.
And at this fall we seen is that about it requires so while we had at this point with my serving this year and the remaining balance about 100 million something we'll be method ending during the next two years. So that the perspective, we see it doesn't matter it out for the $300 million.
And these are yielding in their yielding to on a quarter or so I have worsened.
Okay and that includes the broker deposits as well as.
It will be advances kids, yes.
Okay.
And the PPP program is it a fair for assumption to assume that you're only doing that for existing customers.
We are doing to primarily existing customers, but.
We're also receiving request from non clients and we are certainly.
Serving them on and hopefully we can expand relationships there still.
Okay, and then you know just as we think with the cost savings that you know you mentioned in your prepared remarks or the plan you plan to postpone some of the cost savings from the from the Scotia transaction. One what was the impact of postponing goes into first quarter on expenses and then you know how should we be thinking about sort of how expenses shape out for the next.
Couple of quarters, and when those cost savings potentially could start coming back online.
Yeah. So expenses is an area, where as you guys, who have known us for a while no that were pretty focused on efficiency and.
And we tried to to act on on expenses pretty quickly this time around because of the.
Well because of the Krave pandemic, we postponed the ER the efficiencies from the Scotia transaction just to until until further notice really because we want to know how this plays out first people come first and we don't we don't want to.
A.
Thanks lies.
Of individuals, but would also because we need to service our customers well also so so we are keeping it on the.
On the hold handle right now.
But certainly that does not mean that we're not going to execute on our plan as.
As we design that originally as a matter of fact, we probably would this experience. What we have seen is that we have been able to break down barriers breakdown silos breakdown bureaucracy and get things done faster so.
I'm actually getting I don't want all I want to get myself ahead of the curve here, but I think there are opportunities for us to change processes, a above and beyond the acquisition change processes more efficient in many many things that we do a but as of now we haven't done anything on occupancy.
We haven't done anything on payroll, we haven't done anything on contracts and there are several redundancies that we still have not even a act on it so for the time being I would I would model.
Relatively similar expense level.
As you are seeing this quarter just to until we find out how the probably pandemic plays out but as you know where we're very very cognizant of that.
Right. So I mean, if I'm kind of Interboro, you're saying correctly that you know over the last couple of weeks you guys have maybe learn something so new things about the operating environment in kind of rethink about how the branch in house somebody's processes can work going forward not necessarily under a new normal, but just kind of you know maybe an acceleration towards what you guys are trying to get too.
If you backed up a couple of months.
Correct, you said it better than I did.
Great well, thanks for taking my follow ups I really appreciate it.
Yes, Alex great great talking to you.
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Thank you operator, and thank you to all for listening in.
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