Q2 2020 Popular Inc Earnings Call
Checking quarter 2020 earnings conference call.
All participants will be a neighbor's some remote.
So did you need assistance. Please signal a conference specialists my personally the Star T followed by zero [noise].
After today's presentation there'll be an opportunity to ask questions.
They're actually a question do you remember star been one touchdown Sir.
So what's your all your questions. Please first stars on too.
Please note today's events as being recorded.
I would not life partner conference over to Paul Cardio Investor Relations Officer a popular.
Please go ahead Sir.
Good morning, and thank you for joining us on today's call.
With us today is a C E O D. Matthew operas R. C F O Carlos Vasquez, that's C O L video sorry.
It will review our results for the second quarter and then answering your questions.
Oh the members of our management team will also be available during the Q&A session.
Before we start I would like to remind you got on today's call. When they make word looking statements that are based on punishments current expectations.
Subject to risks and uncertainties.
Doctors that could cause actual results to different materials from these forward looking statements are set forth within today's earnings press release, and a detailed interest you see pilot.
You may find any press release, and our I T. C file you got a web page how popular dot com.
Oh, no I was gonna call over to our CEO Ignacio operas.
Good morning, and thank you for joining the call I hope that you and your loved ones are healthy and stay safe.
Before I dressing are quite a result, I'd first like to discuss the current business environment in Puerto Rico, How's outlining the first to fly other presentation.
The pandemic and related economics disruption continues to have a significant impact on the market research, particularly in Puerto Rico.
Strict locked out of mandated by the government, Puerto Rico March 15th help good tail the initial spread of the pandemic.
As a result, starting I may 26th many of the restrictions that we're in place.
Doing to loosen and the local economy largely reopened over the past couple of one.
As economy reopen we had started to see a revival in business activity, especially in the month of June.
However, the recent sergent positive cases hospitalization <unk>.
Let the governor on July 16th two announced the roll back up some business recreational activities and to impose further restrictions on inbound travel.
Well I'll affecting a much smaller unfortunately, our economy and the original locked down.
He's restrictions will undoubtedly habits significant impact on the hotel and restaurants segments.
[noise] severity of which will depend on the length of these restrictions.
Employment trends deteriorated rapidly in April and I still down significantly compared to last year, but they had begun to stabilize the.
[noise] pick it out I'm trying to claims to date in 2020 [noise] was there in the first week of April nonfarm employment improve by nearly <unk> nearly five per cent, if I'm able to do.
Do you Oughta fails had been severely impacted by the locked out.
49 per cent lower than the second quarter as compared to the second quarter of 2019.
However June was the best month of auto sales in the past decade, an auto sales were 5% higher than the year ago period.
Additionally, sales and a second quarter or six per cent lower than the last few second quarter, but 42 per cent and the month of June year over year.
Our customer spending increase as the economy reopen.
Well debit and credit card sales on the second quarter went down five per cent.
To the year ago period, they increased seven per cent sequentially from the first quarter and June alone sales were 43% higher than it June 2090.
<unk> well bvb, our second quite a mortgage irradiation.
50 per cent lower than the second quarter of 2019.
Originally for the mustard you were on part with 2019 result.
Tourism, However continues to laugh.
Hotel occupancy bought in April at 4%.
[noise] is restrictions were lifted occupancy levels had increased to 23 per se by mid June.
Driven primarily by internal summer tourism.
Additionally, according to the Puerto Rico Tourism Company Hotel occupancy reached 78% over the three year fourth of July weekend, 92 per cent of where to a local tourists.
However, we already seeing this positive trend reverse as a result of the recently in the house restriction.
According to the operator, I Wonder National Airport during June 2020.
[noise] decreased by 67 per cent compared to June 2019.
And you to date through June Puerto Rico received 46% fewer passengers.
And the same period and 2090.
Local in federal government, continuing to provide relief and assistance and responses pandemic.
[noise], Puerto Rico government has approved 787 million and fiscal stimulus.
Also it yesterday, they Puerto Rico, where receive approximately $14 billion in funds in their various federal stainless program.
Puerto Rico restaurants, Orange Saturday received the supplemental federal unemployment benefit of $600 per week, so that benefit. It's currently scheduled to sunset on July 31st.
As a management team taken measures to ensure that soundness of operation and the safety of our employees and customers.
Most of our branches are open, though so am I still operating under redo sketches.
We are communicating regularly with our employees to keep them informed of the involving health and this is environment.
We continued to offer alternative work arrangements for significant portion of our employee base.
We have established a return to work protocol to ensure a safe transition back to on premise activity when deemed advisable.
Hi, I'm also happy to announce it during the quarter, we extended health care coverage two part time employees.
We remain focused on supporting our customers enhancing they're experienced that popular.
We have provided abroad payment really for consumer and commercial lending clients.
We've encouraged customers deals alternative digital begging options.
Seen a 13 per cent increase snack them all my users since March 2020, and surpassed 1 million monthly active users on on the back of digital platform in Puerto Rico, a very significant milestone. Additionally, and the second quarter. We captured 17 72 per se a bar deposits to digital channels.
[noise] to 56 per cent and the first quarter.
Finally in most impressive, giving Puerto Rico's recent demographic trends.
Our customer base confused and growth increasing by 52000 and since March 2022, nearly 1.86 southern customer.
Following the passenger they cared that popular secured funding approval under the Sba's P. P people program for more than 28000 loans for small medium sized businesses totally over at $1.4 billion, including 1.2 billion in Puerto Rico.
215 million in the mainland United States, and 29 million in the U S Virgin Islands.
In fact, we originated 69% of all P. P. B L. O P. P. P loves originated date in Puerto Rico.
The business is supported by these long employed 278000 person and 73 per cent of the loans originated work for less than $25000.
Additionally, popular I secured wanted 300000, instead of a home loan back from New York grass.
Local nonprofit small businesses in Puerto Rico, and the you'd have to metro area.
Is it continued to respond to this rapidly changing situation.
[noise] plans on action will continue to evolve.
[noise], please turn to slide five [noise].
I was in the first quarter, our second quarter results reflect the impact of yeah cause I have disruption caused by a pandemic.
Our quality net income of 120 million was higher than the 34 million reported in the first quarter. However, it was down 25 per cent from the 171 million reported in a year ago period.
Second quarter results were driven by lower provision revenues were down and a quarter and we're partially upset by lower operating expenses.
The decrease in that interest income was driven by the cumulative in fact of interest rate cuts by the fed partially upset by the issue. So the P. P. P loans lower deposit costs and English at our investment portfolio driven by higher deposit balances.
Credit quality trashed remains stable however, the full extent of future economic disruption as a result of the pandemic stealing sir.
Well now I'll tell them to call over to Carlos who will discuss the financial results in more detail.
[noise] nephew good morning.
He started to turn to sleep.
As usual additional information is provider will be 100 for this like that.
Cause they used earnings press release details.
The first court.
For the second quarter, what 451 million decrease 22 million from the first quarter.
Not interest income decreased by 14.6 million two 112 Q2.
Primarily driven my Lord that possibly service charges by 11 45 million, mainly in Puerto Rico due to a large volumes and hired a chocolate bar.
[noise] and.
<unk> other service fees by four $7 million.
Florida bombings dropped bedroom and credit card. Please my eight six milk.
Also contributors to the reduction was elimination of sort of surface service charges and late fees.
Response to different them.
I do for partially upset my first and increased Ethernet unrealized <unk>.
2 million related to employees it for conversation plan.
This entry hasn't upsetting expense can be personnel costly.
Second.
Four 6 million increase the owner operating income.
Mostly do five six medium dream for the <unk>.
Corporate office building.
Well the last couple of years non interest income how do you quarterly run right between 135 and $140 million.
A lot of moving parts contributed to the different Oh 23 to 28 million between this run right on our two Q2 results.
But this reduction is consistent with our parents guidance.
Potential reduction of around $8 million per month.
We have we could return to more trained like not interest income levels will depend on the root of reopening of our markets and increasing plain activity limits.
<unk> experience for the quarter, what 60 familiar which is 137 million lower than Q1.
Video will expand later.
Both of them operating expenses were $348 million 24 million lower Thunder prior corner.
Personally it'll cost decreased by seven 7 million Goodbye lower incentive compensation Commission and bonuses.
Professional fees decreased by eight 5 million due to lower processing technology cost, resulting from lower transactions.
We also benefited from lower advisory legal taxing accounting expenses.
What are your expenses decreased by two $8 million due to discontinue foreclosure activity related to different them.
Last quarter, we announce that'd be responsible lower interest rates and be effected the pandemic.
Limited various cost savings initiatives affecting personally not related expenses professional fees business promotion and other operating expenses.
We are on track to achieve this $55 million savings and thereby reiterate our expectation of average quarterly expensive for 2022 be around 69 million $369 million.
Alright effective tax rate for the corner was 16%.
For the full year 2020, we currently have picked artistic tax rates to be between 14, 78%.
Please turn turn to slide.
And the second quarter, we saw a reduction of $22 million Unity Jersey.
The primary driver this decrease whereas the impact of lowered market rates under yields of our investment and loan portfolios.
This is only partially off sick I'll set my larger bonds as in both portfolio.
Sure deposit costs.
The increase imbalances in the investment portfolio plus related to 9 billion deposit growth.
This increase in deposit was seen across all segments, Puerto Rico public refill commercial.
Many of our customers benefited from federal covered assistance initiatives.
The increases the loan portfolio was driven by one 4 billion PPP notes.
Our deposit cost 34 basis points in the corner a reduction of 23 basis points.
Alrighty due to the impact of nor market rate.
Rico public deposit.
Name decreased by 69 basis points to 3% to 5% in Q too.
On a tactical Aquila basis miniaturist margin was 356%.
Decrease of 78 basis points.
This lower name, it's mainly related to three factors.
First.
In fact on our loan and investment yields.
Oh, the federal funds rates decreasing 150 basis point in mid March.
Second the significant increasing never deposit, which are mostly investing overnight quite fun any short term U S Treasury securities.
I finally during the nation, a one 4 billion <unk>.
Although I create the name interest income within attractive.
Just a return are low yielding unresolved compression in that interest Martin.
We expect Margaret for the rest of 2022, <unk> steady look slightly improving from the second quarter level.
This outlook is very dependent on acid mix loan demand.
The.
Deposit levels.
Password.
And I felt the end of the second quarter, Puerto Rico, probably deposit roughly 14 billion, how about 4 billion higher and Q1.
We expect public deposit bonser to come down or the long term.
An additional covered related federal assistance as well as the impact of seasonal tax collectors would probably lead to increase balances in the near term.
The rate of expenditure of this funds in the timing of agreement on the government's debt restructuring will dictate the amount and timetable of any balance reduction.
Our average loan bonds. This grew by $835 million in the quarter.
This growth was primarily driven by lower yielding PPP loans, partially upset by lower levels of higher yielding consumer bonds that.
<unk>.
And the month of June.
Have seen strong rebound in demand in mortgage auto loan.
Hello, Lisa.
Demand and bonds as in our higher yielding personal loan credit card portfolios compared to show net repayment.
Lower demand.
The level of loan alone bonds that for the rest of 2020 will depend on the duration of the PPP long underperformance of the economy.
We are not providing loanblend is guidance at this time please.
Please turn to slide P.
R capital levels remains strong relative to mainland peers with respect well capitalized regulatory requirement.
So you may recall.
On January 30th of this year, we entered into an accelerated route shared repurchase agreement for $500 million of common stock.
Which was completed on may 27th.
Hopefully they received.
8 million sure at $42 and 30 per share.
Alright, Colin equity Pier, one ratio in Q too was 15, 7% downtown 15, 8%.
The capital simplification rules effective April 2020 reduced C. P. One by 48 basis point.
Daniel book value increase in afforded by almost $4 per share to $60.13.
This increase was weird by our quarterly net income higher realized games on investment.
And a lower sure count offset somewhat.
My dividend paint.
And this like we repeat an update calculation of our pro forma capital ratios applying the loss ratio over our last publish defense. So you really adverse trust from 2070.
And this is where they can we still ended up with very strong see if one ratio of 14, 5%.
These results reflect popular robust capital a position.
For the second quarter of 2020 or allowance for credit losses represent 52% of our security at various defect lost estimate.
A return average tangible equity was 72% in second quarter.
We will continue to pursue or target of those do return on tangible equity.
While it's popular is not required to run or publish regulatory express. This for the last few year, we have complete our stress fit in the summer developed R capital plan to the third quarter unimportant approval of our board of directors engaged with regulators uncomfortable discussions in the last quarter of the year.
This process of allow us to disclose R capital plan for the upcoming year early in the first quarter of that year.
We know expect that this dining table will be delayed by one quarter.
A result, we expect we're engaged in capital discussions regulators.
Early next year.
We then we'll make capital we made an announcement in the second quarter of 21 51.
With that I turn the call over to you.
Well, thank you Carlos on good morning.
Before discussion necessarily impact credit transfer the quarter.
I would like to thank the opportunity to highlight changes in port without credit risk profile since the global financial crisis.
Wish you can see on slide number nine.
Also one might be tempted to view popular based on the last crisis in 2008.
We are a different company with a stronger balance sheet and more conservative risk profile.
And the U S.
Chips from being a lender with significant subprime and construction exposures to a community Amish lender with a lower rates profile.
In Puerto Rico, we also chip that our commercial mix two segments with lower losses.
What are their eyes control my lungs mortgage an auto.
We believe popularity as well positioned to operate successfully during diverse economic environment <unk>.
Given are improved reach profile and changes portfolio mix.
Turning to slide number 10.
We are monitoring the impact covered 19 crisis on our entire loan portfolio.
Yet third number for the segments are more sensitive are highlighted on this life.
Within the CRE non retail segment the exposure in Puerto Rico is mainly comprised of office space, while the exposure in the U S. It's mainly comprised of multifamily.
Office space multifamily occupancy and collections have remained stable throughout the pandemic.
[noise] today, there have been limited numbers of downgrades and this segments.
The level of breed of deferrals, mainly relate to customers liquidity strategies.
And the health care facility segment.
Puerto Rico exposure, it's mainly to hospitals.
<unk> exposure is skilled nursing facility.
For both regions further a local assistance has supported the industry reparation today, there are being a limited number of the proud request and downgrades and this portfolio.
With a non essential retail.
Filter in place orders of curtailed activity of this segment.
As a result, we have experienced a significant number of the <unk>.
I didn't have downgrade it <unk>.
Most within the past rated category, 22% of the portfolio.
Based on borrower surveys.
A coke once you have remained stable compared to pick up a level strip malls reported 86% occupancy I made it to a person collection right.
Shopping centers reported 86% occupancy and 64% collection right.
An important part of our shopping centers portfolio in both regions our own by long term customers with financially strong principles that can withstand short term disruption in cash flow.
Regarding auto rebuilding Puerto Rico.
This activity was subject to they locked on order and sales decreased significantly.
Upon the authorization to with some sales.
Check My report that record sales in June with over 10000, New unique tour.
Popolari historically hotshot low losses.
<unk>, even doing prolonged periods of the grease auto sales.
Given the collateralized nature of this loans.
Regarding the construction segment.
Most of our exposure is in the U S basically in the New York Metro region.
The majority of our project are in the late stage of completion.
No long took off.
Nominal exposure to higher and residential.
To date, there have been a limited number of the power request and downgrades in this portfolio.
Our wholesale exposure, it's mostly in Puerto Rico.
At the another quarter.
Total exposure stood at $368 million.
The second my house experienced elevated levels of stress.
Travel restrictions.
This segment started to reopen gradually as part of the government's reopening plan.
Prior to the imposition of the renew restriction on the use of beaches and hotel come on areas.
Puerto Rico with no rhythm promotion of the destination.
August 15th.
Two eight we have had a significant number of <unk> and downgrades.
Mostly within the past category in this portfolio.
Restaurant balances, where do you are now $50 million per quarter and.
The second may have experienced stress driven by the shelter in place orders.
Sure they locked down orders the majority of a restaurant borrowers, particularly quick service or fast food.
Have continued to operate through delivery and carry out.
As part of the government Foreface reopen implants.
Restaurants, restaurants, where allowed to operate first off 25% capacity than 50%.
Then 75%.
Lee went back to 50%.
On the economy fully reopens, we expect this segment to rebound faster pace, especially the quick surface restaurants.
Date, we have had a significant number of the girls and downgrades within the past category.
To finalize let me also discuss the segments, the which we are not exposed to.
We do not have material credit exposure to energy.
Airlines or sharing national credits.
Turning to slide number 11.
We have continued to provide relief to a customer throw no modifications, either deferrals forbearance or extensions.
From your request for about four modifications have declined 97% from there in April.
We are granted our system.
Approximately 116 customer accounts.
Representing three 9 billion of loans and 27% of total balance.
The account's modified.
A significant percentage, 35% I'll continue to make at least one payment providing that forbearance period.
Please turn to slide number 12 to discuss quite a mess.
Nonperforming assets decreased by $22 million.
Two $881 million this quarter.
Mainly jury Bang audio decrease of $10 million, coupled with a nonperforming loans decrease of 8 million.
The decreasing mpl's, what's in Puerto Rico.
Driven by the mortgage photo portfolio.
Decrease what's driven by the resumption of sales activity.
At the end of the quarter the ratio of Mpl's total loans healthy portfolio.
Two 6% compared to 8% and the previous quarter.
Please turn to shine number 13 to discuss MPL influenced.
Compared to the first quarter.
M P L inflows, excluding consumer loans increased by $21 million <unk>.
Goodbye increases of $9 million, Puerto Rico, commercial portfolio and $7 million in Puerto Rico mortgage portfolio.
The increase in Puerto Rico commercial portfolio.
Mainly driven by a single relationship.
Which will get more clarity on the behavior of MPL influx and the third quarter.
Now that we have a historical electro activities to have been suspended since March.
In the U S and plus to mpls increased by $5 million.
Mainly driven by higher mortgage influenced.
Turning to slide number 14.
Large off I wanted to $65 million.
Or are analyzed 92 basics point of average lawns, helping portfolio.
262 3 million.
91 basis points and the previous quarter.
Corporation allowance for credit losses remained relatively flat from the prior quarter at $980 million.
The ratio of allowance credit losses, too long, helping portfolio lost three 2% and the second quarter compared to three 3% and the prior quarter.
Yeah, I ratio of their allowance for credit losses to mpls, helping portfolio was 131%.
220% and the first quarter.
The provision for credit losses decreased by unknown $26 million.
263 million, mainly driven by the Pandemics impact on on the microeconomic scenarios.
Please turn to slide number 15 to discuss details on the drivers are the barbarians, allowing for credit losses.
We adopted teasel.
On January 1st 2020.
Since implementation.
Allow on for a credit losses related to loans, how can increase by phone and $41 million or 92%.
Driven by that they want adoption impact changes for microeconomic scenarios and loan portfolio changes.
At the end of a second quarter.
Yeah, I'll I'll look for great losses remained essentially flat when compared to the first quarter of 2020.
<unk> or driven by the economic outlook changes to portfolio balances.
Mm portfolio credit quality.
Okay, and the first quarter.
Popular opted to use the March 27.
Morris analytic S Street scenario.
<unk> more severe done the baseline scenario that morning.
The time.
We felt that the first quarter as three scenario was more representative of the economy forecast for.
For the second quarter, we use Moody's baseline scenario.
As we believe it has now caught up with what most economies are expecting in terms of the impact of the pandemic.
Although the paths of economic Virals, it's different.
First quarter is three scenario.
The magnet delivered cosmetic changes inviable is comparable to the Moody's second quarter baseline scenario wish we used for ACL calculation.
They changed microeconomic scenario costs.
Acl's decreased by $23 billion million dollars.
Ah discuss my caller, saying nephew.
Portfolio balances increased by one 4 billion, mainly driven by portfolios insured by the U S government and thus hot no ACL impact.
Mainly pvp loans, and Jimmy main loans subject to repurchase options.
Excluding this long balances decreased by 287 million.
Driven by consumer loans crossing a reduction ACL of 17 million.
During the quarter, we downgraded approximately $190 million to <unk>.
The downgrades no charge of other changes to ACL.
Cos caused Asia to increase by under three minutes.
Summarise Ah number folio attributed stable credit quality metrics during the second quarter.
However, the effects of the pandemic continue to change and the full extent of economic disruptions is uncertain.
The improvements over the last few years in the risk profile of our loan portfolio proficient popular to successfully operate on their challenging environment <unk>.
<unk> will continue to carefully monitor.
Closure of the portfolio to pandemic related risk.
<unk> economic outlook.
Delinquencies Annette charge of evolve.
After that period of payment apparel lapsus.
With that I would like to turn the code over to Ignacio for each concluding remarks.
Thank you and Carlos for your updates.
After 126 years and the banking business. We know success requires that we act quickly and decidedly putting people one.
I would express my gratitude to our employees for their commitment to serve our customers and their creativity and the ability to adapt to a rapidly changing situation.
We continue to support the communities reserve to these difficult times by providing payment approach to more than 116000 customers.
And also provided assistance to health care professionals and nonprofit organizations as a battle the pandemic.
I would I would also like to think our customers with a continued trust and for adapting to this new reality.
They have accelerated their adoption or digital channels.
Our market, leading digital operating in Puerto Rico helped us surpass an important milestone more than 1 million active users on a digital banking platform.
We are aware did they remains much uncertainty after the future of the economy.
Economic performance will continue to be tied to does elements on the health correct, which are very difficult to predict.
If the hell situation deteriorate being to a new round of restrictions on businesses.
[noise] will obviously hamper the economic recovery however.
The strength of our balance sheet.
Levels of capital and liquidity <unk>.
Places and a strong position to continue to serve our clients and whether the challenges and they lie ahead, we're now ready down to your question.
Okay. Thank you we will now be getting my question and answer session.
To ask a question stars on one of them touchdowns phone.
If you are usually the speaker phone, let me ask you. Please bring up your handset before pressing the keys. So what's your all your question. Please first started first.
Well once again, ladies and gentlemen, that's Darwin want US you have a question.
And today's first question comes from <unk> City. Please go ahead.
Thanks, I was wondering if you could just talk a little bit more about the decision to change your.
<unk> scenario that you used.
You know your address to someone and you're prepared remarks that.
Okay It looks like.
The total economic and the new baseline is a little worse, but the recovery happens a lot earlier.
Curious.
To why not stick with.
The more of a double dip recession that you previously.
Yeah.
Baked when we were down to in the first quarter scenarios, we feel that Moody's was playing catch up.
Not adjusted.
That's an Irish rapidly enough to the rapidly changing.
Situation, when we sat down for the second quarter as we mentioned.
With different I think they have for the most part ketchup and I will characterize the second quarter.
Being elongated.
Type of recovery.
And which growth.
Hopkins much later.
Sure.
Will happen much later in 2021, I think that's we mentioned prepared remarks.
Both I think scenarios are similar in terms of a community.
Impact to the to remain economic variables, although the past different from one to the other.
Okay.
And on the deposit growth that you had.
Obviously, some some boost from from the public deposits.
But in general.
The the large level that has occurred how much of that these views somewhat temporary.
And.
You wouldn't be able to really deploy that into higher earnings.
No I think it's.
Obviously, we've had trouble predicting.
The public deposits in the past hesitate to predict how are they going to be deployed in the future, but generally we've seen a lot of liquidity in the system from the federal stimulus payments as opposed to like Hurricane relief. Many of these payments went directly to people. So between the $200 in the unemployment benefits, there's been a lot of liquid eagle.
Into the system that PPP loans put a lot of liquidity into the system.
It's hard it's hard for us to predict some of that money will obviously will be spent some of it will come back with some goes off island, obviously, when you consume things off the island.
I think I think it's very difficult yet for us to.
To get a good a handle on those close at this time, so and the return for taking risks and going out longer it's not very attractive at this time. So we're trying to to get better feel before we make fundamental changes in our in our investment approach.
Okay, and then lastly.
A growth in card.
Volume.
Pretty astounding June I think you said it was about 42, 42% 43.
Was that was that really just pent up demand because of the locked down what was what was driving the really strong.
<unk>.
I mean, it's hard to pin one thing, but obviously.
There was pent-up demand people were locked up in their houses I think we saw some of that in China when.
The first one of ours when people got out for the first time they start spending.
Awesome that got money in their pockets I mean again.
The.
I don't want to unnecessary.
A lot of people in Puerto Rico, they were making minimum wage or close to minimum wage we're getting checks of five $6000.
Employment, Yeah. They were getting 600, a week, but they were getting the checks were delayed many states and by the time. They got the checks. It was retroactive they were really getting checks of $5000 something they would never had in their lifestyles Lotta money in the system is pent up demand.
And I think consumer demand picked up faster than we actually anticipated people started going back to restaurants. The stores. So we'll have to see how this recent surge effects that but I think the consumer came back a lot faster than that I would've thought.
Okay. Thank you okay.
Alright next question today It comes from Alan squared all with Piper Sandwich. Please go ahead.
Good morning mourning mourning.
I'm just wondering maybe you can give us a little bit more color on the downgrade. So you guys did during this quarter and the reserve that was associated with them and I guess, what I'm trying to figure out is.
When you did the downgrades, what assumptions, where you're making about the economy, where we already at the point, where things just trying to reopen and the expectation or is that they're going to remain opened.
Or is there a slightly more pessimistic view taken especially in somebody like the hotels in the restaurants and some of the higher downgraded buckets.
Yes.
I also mentioned that prepared remarks, most of the downwards, we compare during the quarter. We're in the within the past category. However, having said that there were certain segments and which given the information that we had available for us given the <unk>.
Prospect or the industry, we did downgrade to some stander or worse, we mentioned that.
I'm glad about $200 million $90 million to September worse.
As we always do take into account.
How the company's during the prospect for the company or not going forward basis.
To withstand further.
Disruption caused by by the pandemic, but we're not.
Making.
I spent in terms of economic algorithm, thank God things are pretty uncertain.
But it's more base on the current ability after organization to with some.
Further crisis under liquidity position.
Okay.
For that and then one topic that I think a lot of us in the call I've been following and maybe haven't gotten that much information on is kind of this this idea that pharmaceutical manufacturing sorry huge part of the economy in Puerto Rico could grow even further.
Based on some repatriation of medical device and pharmaceutical manufacturing away from other parts of the world.
On the ground is there more that you can kind of give us in terms of sort of what's going on capacity in the space things like that that.
Or or any other bills I know, we've seen one kind of circulating any other bills that are being talked about that could be helpful and for people trying to figure out.
How much water that thesis can hold.
Like you said, it's a number of bill's going around in Congress is a number of people in the administration.
Have proposed the idea of making Puerto Rico.
A sorted pharmaceutical strength of the U S.
This is.
A good opportunity for the island I think that.
I believe that.
Things have worked in our favor, but the impact will be more gradual I think that I think we'll have a better chance of not losing new production lines and bringing new production lines.
To Puerto Rico.
Obviously with the concerned about logistics.
And and continuing warfare with China, he's going to change the world. So the question is how much.
It's going to be shifting.
Production from from China, and other places closer to the U S and I think some will be within the United States I think curico get a shot.
But most of what I think so far is unacceptable except that last week.
Or actually the beginning of this week and not a pharmaceutical because I think you have to keep in mind as two things that you're going to benefit from the pharmaceutical and the medical device medical devices, a very important people lump them together, sometimes that is very important category coopervision, which is a very large operation in the southern part of the island announces kind of make it may or may.
[noise] expansion.
So that was announced that the beginning of the week. So so anecdotally I think good things I really don't have more.
Concrete information to give you.
Oh, that's helpful. Thanks for taking my questions.
Okay.
And the next question today comes from Joe Glad you with all of them Securities. Please go ahead.
Yeah good afternoon.
Hi, Joan afternoon.
Just a couple of quick ones just.
Regarding the.
PPP loans, just wondering what your.
Cancer assumptions are as to when.
Forgiveness.
It starts to come through and one most of that is completed is.
I think our assumption I have is going to be that most of our clients are going to try to.
To get the alone.
From what we've talked to our clients most are going to go for 100 per cent forgiveness. So I think as soon as the.
<unk> It comes out with clear guidelines, how you do that I think it's going to happen within the next <unk> extended period, you can use the funds.
224 weeks, so I think it will happen by.
The third and end of the year at least I like to end of the year.
<unk>.
Significant part of the.
Portfolio will.
Required by the end of the.
Yeah. So.
Alright, just.
No you've touched on important prepared remarks, I mean, some of the past question, but.
Yes.
Yeah.
Liquidity on and deposits on the balance sheet.
Yeah, a lot of that as some of the P. P T findings and such.
Have you gotten any.
And the last.
Monster to any.
Insight into.
Yeah, just as that coming off gradually or do you think that's going to come off more in chunks or just any.
I'm, sorry, you might have so far.
To what you're seeing.
How those funds.
Drawn down.
No I'm not sure there is a authority Joe.
Some of the expenditures by the government will be in big chunks.
But.
Happening with a low those big chunks is they moved from the government account at the bank to individual corporate accounting for your bank. So.
Do recap through some of that so while they may be.
Big chunk of funds transfer doing assistance for example by the government.
You may not see the same.
Although the process because we just moved towards the faucet accounts. So it's hard to get a handle on it. The government is taking a long time since we started with bursting the assistance money.
That money.
New getting to people and the last month or so.
So.
Early days, hopefully, we'll have more clarity might be.
Yeah, I think a lot on the private deposits going to depend also on what the new federal stimulus package. It looks like a lot of people have a lot of liquidity if they have start using that liquidity and the unemployment benefit run out or go down substantially or there's not a new PPP program rates that extended.
The businesses that.
That liquidity will have to use it and if there's been a replacement for it. So I think a lot of it's also gonna depend on on this next stimulus program.
Okay Alright.
The last question.
I appreciate the.
Information on the.
Yeah.
PPP loans that went to some of your sensitive.
Lending segments just.
Ask one additional detail on that.
Do you have a sense of how many.
What percentage of deferrals.
Borrowers benefited from some of the government programs PPP particular.
Oh, I don't think we have that.
No no he wants to know what percentage of our clients and the deferral programs obtained P. P.
I don't have.
Sorry.
I don't even think we have that question I have.
Okay, maybe one incorporated in next time sensitive sacrament, yes, alright, Thank you for Ya Alright.
Alright, well. Thank you. Thank you.
And the next question today comes from Glen Manto with Q3 at Lord's. Please go ahead.
Hi, good warning.
Good morning, How're you Doin'.
Good Thanks, Carlos Thank you for the for the detailed information on the name.
I can follow up is there could you break out.
Part of the name move that was attributed to rates the excess liquidity and then the P. P P loans.
This quarter basically the 79 basis point drop in the FTA and also with respect to the P. P. P loans, giving your prior comment.
You are anticipation is at 100% could be forgiven by the end of the year, what right did you use those loans for the current quarter.
The.
As far as breaking up the drop it's very hard to do Glen because you have to make assumptions as far as where the additional funding on the new funding was invested so there is.
Zillions assumptions, we had to me to answer. Your question you are very good question intelligently from our apart.
Have taken a shatter that are estimated at this point in time is roughly big picture.
Two thirds of the.
The drop in.
Once the result of change and mix and increases the balance sheet and the other third roughly was linked to rates or or acid mix of other things. So it's roughly two third one third again.
And your assumptions you can come up with a different number.
The best we could do.
As far as the PPP the yield.
How long has 250.
250, 528 285.
Okay.
Okay and then.
Qualitative and maybe this is a big picture across the industry, but given the rapidity the moves from the fed do you think this cycle that nims reached trough levels, a little bit sooner than they did in the last cycle and I know you gave your guidance was for stable to maybe slightly up in the back him from the year and some of that could be from <unk>.
Long as rolling off, but just like longer term and maybe just qualitatively I'd like to hear your thoughts on that.
Yes.
That would really be a very bank specific.
Situation.
For example, we have been.
And the results we have a successful I'm moving.
Perfect cause down.
But.
And the environment like the one we have significant uncertainty we tend to we also cautious in a way that we're doing that there may be able to banks, where it'd be a lot more aggressive on the way they approach.
Approach.
The relaxing and deposit cost.
So that's one.
One consideration Bureau consideration depending on your deposit book.
The line.
The effect the line in can do when did dropping right.
Hello through you.
Deposit books may be different.
Not all our deposit right.
Down on March 1st.
So.
So the full effect of the dropping right.
Milk.
A part of the second quarter not the whole second quarter, So hopefully will benefit from.
More of that.
And the third quarter, so very bank specific I would assume and.
Within.
The third quarter, most people will have seen a lot of the.
Okay.
You know the.
The name varies Moore.
All the things like acid me and the faucet levels than adults because of race.
Okay is there might be.
Reserve are somewhat different.
Okay, and then if I make just one for Lydia all thank you. Thank you for the information on the deferrals I know ocean.
The press release that you said deferrals, we're going to start.
To roll off in July through September I guess, we're a month through July now what are you seeing on Redefault rural rates from customers and also maybe if you could just highlight some of the differences in deferral policies on the island versus.
On the mainland.
I would say a couple of things the first the first thing you Oscar I mean I don't have.
After the information to provide you in terms of really feel rates for some of our customers.
So we will provide details market on.
Next webcast.
In terms of some of the differences.
I think because of the accident. There are two things that I would say I mean, we have gone through crisis in the past and we have offered deferral programs to customers.
Hello Island before so.
I used to having difficult problems I'm thinking advantage of it.
The other items that I will say, particularly related to a commercial portfolio.
And the U S.
Can you industry you have seen a lot of light utilization as part of our customers.
Liquidity strategies in Puerto Rico, we haven't really seem that they have done is that you'd prefer programs as part of their liquidity strategy. So right out here in the line behalf referrals to just keep cash within the operation.
I would add that on this is acknowledged that would have been on the consumer front.
As opposed to most <unk> in Puerto Rico, there, we're mandated deferrals for consumer products beyond mortgage I know some jurisdictions had mortgage relief in the <unk> that was he had mortgage Lee, but basically in Puerto Rico, we had mandated.
<unk> and deferrals for all consumer products all the client had to do was.
Basically stayed that he had been impacted by the pandemic, but with no further evidence. So that's a major substantive difference.
Okay. Thank you very much for taking my questions. Thank you.
Okay, ladies and gentlemen, as a reminder, if you'd like to ask a question. What please first Star Wars. Today's next question comes from Gerard Cassidy with RBC capital markets. Please go ahead.
Good morning, and Yoshino and Carlos how are you good morning.
Good.
Couple of questions clearly you talked about the outlook on the Moody's economic forecast, which of course influences.
The provision for a loan losses, particularly with seasonal now if we continue to see a stable outlook for.
The economy, according to Moody's and whenever you adjust for your own overly.
The provision for loan losses, essentially them be just the provisions you need for maybe some re readings that go on within the portfolio and loan growth and therefore.
Won't possibly see elevated provisions going forward.
Ah swimming and those are big assumption is favorable economic forecasts, but I think what you said it makes sense, yes, okay. I know that's a big assumptions.
It would be.
Hello World charge authenticated me downgrade.
But but the charge or she wouldn't have to replace would you since you've already.
Assuming they go according to your internal plan and what Chargers only regardless.
Okay.
And then the second question was in the different programs that you guys gave us the detail on when you look at the non essential retail in hotel properties that are in deferral once the typical loan to value for those types of properties.
I would say I mean, we typically underwrite loans to.
70, 75% of the value.
Okay.
Guessing value today, I don't know items for his bedroom for me to tell you what are the current lumped volumes because I don't know what is the value equation today.
But typically we on the right to 70, 75%.
I see and then lastly.
If you guys have talked to the New York said, but could you give me any sense from the fed when there.
Ported the deferral programs, where you don't have to reclassify those loans when that support will be.
Eliminated.
Any idea when that may happen.
They haven't they haven't communicated I think they're they're communications basically the industrywide communications that they've given out.
I think they've been I think I think they've been pretty.
Pretty open to clear that you'd have to help customers within within within the reasonable imprudent parameters.
I don't see any pressure coming from the fed in that area.
And then I guess, just as a follow up to that.
Through the end of the year, when the accountants up to sign off on.
SCC documents.
If the deferral program is still in place for all the banks not just you guys.
And the furnace still supportive.
Is there any potential kind of conflicts with the the accountants and ECC versus the regulators on deferral loans.
Good morning is Jorge Mercy.
Kind of come together, adding clarity evidence suspended any of the accounting rules. So we're still a subject evaluating the <unk> et cetera, and that's really what you would that's the risk so when you'd have to classify defence shovel debt restructuring.
But I don't expect a conflict I think the information that's out there now is just converging and clarifying how to apply it certainly where we're complying with that.
Then again.
Program not being generally send it to.
They have come through and and obviously that cares act is federally mandated for mortgages and we will follow that alright, but other than the cares most most broad uniform deferral programs have have now expired.
Alright, Thank you guys.
Thank you.
Hello, My Name's and gentleman. This concludes the question and answer session I'd like to turn the conference back over to the management team from you sound a little box.
Thank you for joining us today and for your questions.
Please continue to focus on your health and be diligent about your safety. That's the most important thing we look forward to sharing a results for the third quarter and October take care.
Okay. Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation.
Not a scratch your lines and have a wonderful day.