Q4 2020 First Bancorp Earnings Call
Good day and welcome to the first Bancorp fourth quarter and full year 2020 earnings conference call all participants will be in listen only mode.
After todays presentation, there will be an opportunity to ask questions should you need assistance. Please signal a conference specialist by both of them.
Dr. Keep all of those hero. Please note. This event is being recorded I would now like to turn the conference over to John Pelling Investor Relations Officer beforehand.
Thank you Melissa good morning, everyone and thank you for joining the first Bancorp's conference call and webcast to discuss the Companys from natural fourth quarter and fiscal year ended 2020.
Joining you today from first Bancorp are a real element President and Chief Executive Officer, Arlanda, Burke Executive Vice President and Chief Financial Officer before we begin today's call. It is my responsibility to inform you of this comment of certain forward looking statements such as projections of revenue earnings and capital structure as well as statements on the plans and objectives of the Companys business.
The company's actual results could differ materially from the forward looking statements made due to important factors described in the company's latest SEC filings the.
The company assumes no obligation to update any forward looking statements made during the call. If anyone that's already of a copy of the webcast presentation of our press release, you can access them on site. One first bank dot com at this time I'd like to turn the call over to our CEO of really all of them really.
Thank you Jan.
Everyone and thanks for joining today, we wish you all the help the plenty of 'twenty one.
Please let's move to slide four to discuss the highlights of the year of.
We're definitely very pleased with our results for the year I'm truly proud of what our team will say well do accomplish you know overcoming all of the many challenges posed by the pandemic in the operating environment.
It really was a transformational year for all of our company with the acquisition that closed on September 1st.
Which has further expand at all where might the chairs solidify our position in Puerto Rico with now over 30% growth in our customer base, reaching 600 on 75 yourself with customers.
We're also very pleased with what the technological advancements on the year and an hour of D. There'll be burdened us our lines of options of digital channels continued to improve during the 20th Blaney the.
Reaching you know on increase of over 33 per cent and logins and indeed that the non sexual increasing over 55 per cent for the year.
It is the priority to continue investing in technology infrastructure projects on digital.
And so we continue driving efficiency, absolutely bro that ive seen bar all of them with the with the integration.
We were definitely very focused on the integration and has been running on schedule.
<unk> planned to be completed by by the end of the summer.
On the on the on the economic side, the micro on geopolitical landscape in Puerto Rico.
<unk> continued to be improving.
Economic measure of steaming from Asia on steam of loss on this that the really funding will definitely provide additional support to those impacted by the pandemic on the overall environment.
The lockdowns.
Continue are they out of the sort of let layer, but.
But when we look at December of D. V D. It looks actually you know fairly healthy considering the limitations in operating hours.
The impact of sectors are from you know continue to be hospitality a rate though.
On the other hat on you know we were entering 'twenty 'twenty. One you know on on very solid food on a fortress balance sheet to support that economic recovery. You know we have very small liquidity the solid research coverage of a very strong capital.
The b to begin the year with.
For the year, we generated 102 million net income of 46 cents per share shy to the 167 million that we generate that into any of 19 definitely are impacted by the economic effects of on the pandemic and the.
The increase probation it driven by season on the acquisition.
Pre tax pre provision was strong increasing 6% to 300 million with actually the only four months of of our combined company.
And on in spite of Covid actually long on DVD.
But of course, the lower activity, which impact the loans David will cover. The later on obviously you know in spite of the yield curve that the banks of operating was definitely but the top line revenue.
Lower return age old renal one for the year reached $4 4 billion E on the organic core deposit growth. The the record growth of 2 billion. So it was really really at the very.
Both of these core year for the company.
Now, let's let's move to slide six to cover the.
Highlights of the quarter.
For this quarter as we announced this morning, we generate the net income of 50 Emilio do anybody per share. This compares to 28 million of in the bus quarter.
It is important to highlight that this is the first full quarter of operations of the combined franchise.
B B in our gaming very strong with with 86 million up from 77 in the prior quarter.
And I think importantly, you know we were past the the moratoriums on we were very closely monitoring asset quality metrics, let's say by the day method remained stable and on obviously those focus on those borrowers negatively impacted by the effects on the pandemic.
You know, we really say it is early to predict fine on the final inflows to a b E.
The created by the pandemic, but when we look at the initial metrics.
The Baltimore Aboding delinquency of meant that the total year and still compare the better when we look at December 19 pre pandemic levels.
As I say, we continue to invest in technology to better serve the customer during this quarter, we implemented a new one leg of the mobile platform for credit cards, and we also continue the rollout of our new branch the eat on one platform.
And then one of the copy done you don't see the one a 17.3 definitely both acquisition on the but still very very strong in and none of them on behaviors.
So please let's move to slide seven of I'd like to explain the bid on on loans and all of that D V D and on the buses.
As I say long long range on D. V. D was robust for the quarter of one 4 billion.
Excludes great got of D V D a.
The primarily growth was in the commercial on on the auto portfolio.
The you know I think we all know the commercial like D. V. D. It's it's it's seasonal in Ireland.
Yes, we have a very solid quarter of deals that got delayed in the year. We also have some volumes on the main street loan programs on BBB. So if we exclude.
If we exclude the main street M. B B B of reinsure still increased by 278 million to $1 2 billion so still strong.
The the overall portfolio now at 11.8 billion the glide lightly from from Brown water I will say you know primarily due to strategic reductions in residential we continue to originate Brian.
Brian Murray, a conforming loans, which has helped the non interest income on and also we received repayments of about 49, mainly on on on.
Of the PPP loan forgiveness process.
For this quarter, we on D. C based on all of their approximate 800 million of repayment of B B B.
Obviously, the ease the pain on the speed that SBA process the forgiveness.
And we're now obviously as you know we're getting round two of P. B B, which was recently approved.
Our initial estimates are around the aluminum 50, mainly on in in loans during the first half of 'twenty 'twenty one on PPP loans.
We know that these this could replace some of the normal commercial volume over the next months as it happened in the first round of PPP, but definitely this is of great great support to the small businesses.
We expect loan you know these loans to be smaller.
On the ground alert them to be more focused on the smaller on the smaller businesses.
You know on the deposit from there's ample liquidity in the market. We continue to see inflow of funds. We continue to see you know the deposit growth and you know we expect the year to to continue on that trend.
So you know, we're really focused on on on increasing loan generation, we have excess liquidity that we need to deploy.
And when we look at the quarter.
Core deposit the world by another 257 million.
The buy of language it's growing.
Obviously, you know go from an on mortgage trends continue the you know very solidly the American system and as always commercially it's always more deal driven so we're working hard to do be buildup of pipeline.
Now, let's please move to slide eight.
I think it's important to highlight the you know the earnings the earnings.
Earnings power of our franchise now reach a new high with 86 million wont be Bernard on the combined operation again being the only the first quarter of this.
The Dean Hum funding profile of the combining the two show more so of contributes due to mitigating some of the Utica of impact on on the on the owner of old yield of the portfolio.
And obviously now we have more customers to to reach more customers to go after for loan generation.
You know looking into 'twenty and 'twenty. One you know obviously, there's going to be some noise still because of the of the integration on the first of all of the year.
It's definitely focus on integration, we want to finish the by summer. The so there were some expenses the.
Or are there too to be able to achieve the full benefit of integration. So they will be primarily focused in the first of all of the year and.
And then on the second half of the year, it's important to know the US. We you know market recovers everything reopens, which is what we expect.
And as we grow revenue of Theres. Some theres also some from variable expense.
The tied to these revenues that could bring some increase.
The way, we're targeting a long term at the century ratio of 55 per cent.
Following the completion of the integration.
I want to make the comment that we really need to you know we realize that the recognize that it's challenging for banks to achieve you know mid fifties in the current yield curve environment. So we also expect you know hopefully some improvement in.
And in the curve sort of point in time at the end of the year.
Let's move on those licensees to slightly touch on on the coffee done and the balance sheet.
Again like we did the continued to bill in the quarter. So we have you know we continue to see excess cash.
The research governor of remain of the.
Similar levels of Brown quarters of those very strong reserve coverage I thought he bought the three.
And then you know of Coffey does again very strong we've seen the one on above 17% after completing the acquisition.
As I say in the last in the last call you know of capital deployment opportunities remain the priority on are the focus of.
Management and board last night, we announced the abboud, while doing good the dividend this quarter to seven cents per share it definitely driven by by coating on the break that earnings and cash.
As I commented on in the bus earnings call and during this quarter, where we're actively working on the on the old data the stress test on.
On a day to capital plan to be present, the dwell on board in order to conclude on potential of the shown on the capital actions moving forward. So with that I'll turn the call door land on we will come back for questions. Thank you.
Good morning, everyone.
Mentioned, we had a strong quarter of $50 million in the quarter or 23 cents, a share which compares with the $28 million last quarter 30 of tens of chaired the again.
Keep in mind on the quarter do does reflect the food the food.
But the first full quarter of effect of the acquired operations. We only had one month of all of those results and in the third quarter of 2020.
The quarter included our skills on the merger and restructuring costs of $12 3 million this quarter compared with the $10 4 million last quarter.
And also keep in mind that last quarter, we had a.
They once you saw the allowance for the cooperation of almost 39 million on we recognized on 8 million reverse all of partial reversal of the deferred tax asset value.
<unk> allowance, which also stream.
As reflected on the results.
Net interest income for the quarter, it's up about $29 million.
A lot has to do with the $1 7 billion higher average loan balance we have in the quarter.
Which includes the the Santander acquisition, obviously the full effect.
But also.
And the originations on the commercial and consumer loans for the quarter of those were partially offset by the US Aurelio made reference to also the fact that we have continued to reduce the the mortgage portfolio of which is spelled out of 130 million of enough compared to September 30th.
Well, the the 49 million a reduction in PPP loans from loans have been submitted for.
Forgiveness and they were paid off in the quarter.
The order also we recognized $1 1 million of interest income we collected on on non accrual loans.
The chart on non accrual loans that were recovered.
On the.
The repayment of the of the PPP loans.
Hold on any of the acceleration of $700000 on the.
Of commissions on those loans.
The on the quarter, we also.
Oh, hi, everybody the option of about $800000 on interest expense.
This is even though the overall.
Interest bearing liabilities went up $2 billion from.
You know the full quarter effect of the of the transaction.
And continued increased on deposits so that that is.
The significant we saw an 18 basis points reduction on the funding cost.
During the quarter as compared to two last quarter.
Margin was 395 as you saw on the on the release.
A couple of basis points higher than last quarter, which was 393, but the industrial like the four basis points positive impact from the $1 1 billion of.
Non performing intra.
The interest collected on the 700000 on the on the PPP loan acceleration of the Opry.
Non interest income for the quarter of $30 million, a sub $5 million.
If we consider the last quarter had 5 million of gains on loss or gain on sales of securities. We didn't have much this quarter. So excluding that those 5 million net.
Non interest income went up.
Again $5 million.
One of 5 million with service charges on deposits.
Full quarter of Santander acquisition plus.
Increases that we're starting to see on volume of transactions.
The.
The second and third quarter expenses were lower.
The variable component of the expenses were lower than in the transaction related fees.
The transaction value and volume the airport fees were also down.
Our mortgage banking activities, we continue to see strong of.
Originations, so a lot of refinancing.
The significant part of it.
Conforming paper that we end up selling so we had.
500000 increases in the in those so.
Gains on sales of some of those.
Mortgage loans.
During the quarter, we recognized $1 4 million on on fees on main Street Lynn Sweet loans, we originated during the quarter of $184 million of loans, where we're related on the mean.
On the street lending program.
And we sold the 95% participation.
Two of the Golar in minutes.
The.
The belt stipulate.
Accumulated in the in the in the program.
Expenses for the quarter were 100 on $34 million.
Almost 135.
Which is up from one of seven again full quarter effect.
Those expenses and include the 12 million in merger and restructuring costs.
For the quarter, so far from the start of the process, we have incurred of approximately 36 million.
Merger on restructuring costs as part.
The transaction and we expect that there will be an addition of somewhere between 26 on 30 million happening mostly on the first half of 2021 as we complete our integrations convergence on the number of other other things that are ongoing in the integration process.
But pandemic expenses again.
Cleaning cost each.
You show on security and things like that.
We're $1 1 billion basically similar to the 1 million, we had in the third quarter.
If we exclude all of these items, our expenses went up $25 million.
Mostly again from having the full quarter, albeit where operations.
But also the the higher transaction volumes on debit credit card and some of the components increased cost.
Plus some channel items on.
From $900 on incentive compensation increases we had.
The $2 3 million in technology piece.
On the increased amortization of the intangibles associated with the contraction was out of one $5 million higher for the quarter.
On the on the other hand, if we look at credit related expenses that were slightly down.
Sure.
$1 8 million compared to $2 two.
$2 million last quarter.
There is one item that has been affected by obviously by the moratorium programs on a on the delays on foreclosures on some of our legal processes in the market.
Over the next couple of quarters, we expect some increases in these categories of foreclosures on on all.
Of the legal process.
Come back to normal levels.
Our allowance for credit losses of December was $401 million slightly down from from our $402 6 million we had of September.
However, the allowance for credit losses on loans was 385 386 of our Oh.
First.
Which is one 2 million higher than at September the ratio of the loans allowance was 328 as compared to 325 in September.
The provision for the quarter US is on the release was $7 7 million, which compares to 40, almost 47 billion of in the quarter, but again the third quarter included the 38.
9 million provision day, one provision we put in.
I would see total requirement for non BCD loans on the acquired operations.
For this quarter the project debt microeconomic scenarios used for calculation of the allowance for credit losses.
Improvements in many of the economic variables.
Including unemployment, which is critical.
Critical of driver.
As compared to what we use in the third quarter.
Robert.
On the CRE index chose deterioration in the quarter, mostly due to longer project debt recovery timeframe, especially on commercial retail real estate.
As a result of the required provision for credit losses for the commercial portfolios went up.
And we booked the provision of $22 3 million in the in the fourth quarter and the.
The reserve or the gain.
Allowance for credit losses.
The increase to $152 7 million or $2 seven of loans from our two 3% of loans last quarter.
In the guidance of residential mortgages on the.
The other hand, the improvement of Margaret economic variables combined with the with the reduction on the portfolio that I mentioned out of the 113 million reduction resulted a net release of credit losses of $9 8 million for the quarter.
And same thing on consumer side of the the proof point on the macroeconomic variables resulted in a release of $2 3 million in reserves requirements.
If we exclude the PPP loans on a non-GAAP basis of the.
Ratio of the allowance.
Two loans would be $3 39, which is still a very healthy allowance coverage.
For possible losses of December It was 338 of September so it stayed very consistent.
Yeah.
In terms of asset quality.
Non performing were basically flat from last quarter to $194 million.
Nonperforming loans increased $3 <unk> in the quarter $2 6 million of the increase was in residential portfolio and $1 4 million in the consumer portfolio on the other hand, the the other real estate own came down by 6 million driven by sales.
We sold $5 8 million of residential real estate real estate all of the real estate debt, we had on the books.
With the with the exploration of the more I'll probably be loans.
We did see in the in this quarter was on increasing inflows.
The inflows of nonperforming were $32 9 million compared to $18 4 million in the third quarter.
But if you compare the inflow of the simple more level to pre pandemic. These were very much in line two of what we had what we saw in the December of 2019 in the first quarter of 2020.
The early delinquency showed similar trends. We also saw increases in early delinquency from from September levels, but still at levels that are below.
What what we.
What we had at.
At December of last year, So it's been still a very consistent.
Regarding capital ratios I think that.
On the non performing before we go to capital the thing that it is important to mention on the non performing the way we see it we do expect that there could be some increases.
Major non numbers, but some increases of non performing on the first half of 2021.
We completed all of this process with the customers on one of moratoriums on had impacts associated with the pandemic.
And then by the second half of the year those would get back to normal levels.
The temporary thing we feel it's going to be seen in the first half of 2021.
Regarding capital again, our range already touch its strong capital ratios I do want to mention debt.
Our leverage ratio of chose a decrease from September but its all related to the fact that September we only had one month, albeit where operation there.
Therefore average balances which are used for the leverage were lower.
The level of of of leverage resulting of 11, 3% still very healthy and on.
And while in line with what we had expected.
The completion of the transaction.
Regarding the year.
Again Aurelio touched on this I don't want to go into a lot of detail, but clearly the biggest impact was the provision.
Net income for the year was 102 million of 46 cents per share, but it was affected by $130 million increase in provision.
Which includes the pandemic impact and the fact that we.
We did record of.
The day, one allowance of 39 million I mentioned before required.
For the loans of the non PCI loans, we obtain on the transaction.
Our adjusted pretax pre provision for the year.
That's up 6% to $300 million from $284 million so it.
It was a pretty pretty good.
The improvement and that obviously includes some additional months from tons from the acquired some of their operations.
NPA is year over year decreased $24 million.
$294 million and we continue to work on the process of getting those those numbers now.
With that I will I will open the call for questions.
We will now begin the question and answer session to ask the question you May Press Star then one on your touched on from if you are using a speakerphone. Please pick up your handset before casting.
To withdraw your question. Please star then two.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Ebrahim <unk>.
Bank of America. Please go ahead.
On.
Hi, guys. Good morning, this is Chris <unk> on for Abraham.
Christian on the Oreo.
Good morning, So I appreciate the comment that you guys are continuing to work on your capital plan in the sense of the board.
But is there anything specifically holding up of buyback announcement either.
Your comfort on the macro outlook or anything deal integration related you can address that and any potential timing on one of their first happened realistic that'd be really helpful.
The there is obviously the steps to get there to get to the the final plan of David with the most recent data all of the combined entity. So that process is on the going in.
Once we conclude we go to the required approval. So we expect to be between now and the next call.
The give more from news on on any potential capital actions.
Okay.
Very helpful. And then just one separate follow up I appreciate the mid 50% long term efficiency guidance can you guys just discuss whether that assumes a higher rate outlook on either of the short end of the long end.
And what's the realistic timeline to achieve that assuming the economy bounces back as early as the second half of this year.
We're assuming that that assumes that the economy starts to see.
Sure.
Reopening in the in the third quarter.
And obviously, we still have activities of integration in the quarter. So our goal it's really by the end of the year.
But clearly the your reference to two rates make contemplate.
Contemplate here.
At this point we've been.
Modeling, mostly based on on the current forward curves.
Debt.
Then you see on Bloomberg.
It would be a good indication.
And obviously still Douglas enjoy significant amount of increase in rate.
It would definitely help but we do have to go through the completion of the integration on achieving some of the integration savings sort of through.
Through this process.
Alright, great guys. Thanks for taking my questions I'll re queue.
Thanks, Chris.
The next question comes from Alex toward all of Piper Sandler. Please go ahead.
Hey, good morning, guys good morning.
Alex.
I just first off on to make sure I heard what you said there are really on correctly on on.
On your commentary on additional capital actions. It sounded like you said that between now and the next earnings call on April that you hope to have some more firm news is that is that right.
That's correct, Yeah, obviously, where we're getting the process on.
As I mentioned in the last call were consistent with the plan closing the year.
Having the combined bank, having the combining of stress test.
Going through the approval process and in completion of the documents.
<unk> presented the board is the sequence of events in this type of activity and hopefully by the next call. We can give you the more firm action plan.
Okay, Great and then just in terms of of how that process works is it is it based on year end numbers that you update your stressed the tests annually as it kind of on an annual process of you go through or is it on more fluid.
<unk> spent the depending on market conditions, and the et cetera.
Economic forecasts are updated frequently so so it depends on the frequency of use.
See variability on the economy. It seems on stable you know and then as the only have to do it every year.
In the bank of our size, obviously, we have significant changes in the economic forecast over the last few years. The most recent one always in the shows of better prospects of the economy for 'twenty 'twenty, one and hopefully that continues.
<unk>.
That's the reason behind it you have to be just to make sure you assess what is the latest economic forecast.
Like to give you scenarios on with the with the acquisition.
Alex with the significant change in portfolio. So we are running full set of stress testing on portfolios on the combined portfolios.
Just to make sure that on everything it's on line with.
What our estimates were we were working on the transaction.
And that a significant component of any capital planning analysis.
So those steps on our ongoing as we speak on our on going through all of that stress testing of the portfolio.
Okay, and then as you kind of go through that stress testing process, I mean, what what sort of of the variables debt.
Does that matter.
Look it sort of adversely and.
And first case capital you know our capital level of kind of DFAST type number as sort of.
Helping to be sort of the guide frame for where you need to operate today or how should we think about the capital levels.
On a go forward basis, you know both sides of the severely adverse scenarios, but also just how much capital you need to run with in a normalized environment.
What we have done over the years, it's come up with.
As part of that stress scenario come up with what we believe are some of the levels of.
Let's call it cushion or levels of of buffer that we feel we should keep based on the current scenarios on the composition of the of the portfolios.
And with that.
Well capitalized level on all of that we come up with what we feel it.
The ongoing run rate of capital, we should keep on the books and that should be the basis to determine how much.
The excess capital we should we true we have now.
Okay. That's helpful. And then the securities purchases that you did during the fourth quarter. When it went in the quarter were those were those executed in just kind of is there going to be some carry through impact in the first quarter of next year on NII from just that liquidity deployment.
There were.
Few things going on on that number one.
Remember that we sold the <unk> of September some of the portfolios of the Treasury portfolios, we acquired from Santander.
And then.
With a really really low deal after purchase accounting treatments.
So we sold all of those.
Those were reinvested.
Through October most of it happen.
The settlement dates model most of them were between half the second the the the middle of October on the end of October after that.
The deposit increases on the liquidity, we have continued to reinvest and and obviously the level of prepayments continued to be seen on the more on the portfolio. So those are reinvested. So those have been throughout the quarter.
The challenge is.
As you know we don't take credit risks are we avoid all credit risk on the investment portfolio, we try to keep the credit risk on the loan portfolio.
And the deals out there or not reimbursement deals are not large chassis as well.
No I'll, let you think of a lot of extension risk and we don't feel at this point.
It's something we wanted to extend too much.
So thats been the challenge on.
It's creating some of breed auctions on the overall yield of the portfolio.
It's a bit compensated with the fact that we've been originated I would share of although demand deposits as part of the growth.
So that helps on the mix of funding.
But in.
The investment portfolio.
I don't I don't think it is good I don't come with the investment portfolio to be a big.
Contributor to improvement of yields.
Yeah.
Okay, and then just on the other side of the balance sheet on the the other interest bearing deposits.
Nice ticked down.
In the fourth quarter to 54 basis points, where do you see that trending to over time.
Assuming no change in the rate environment.
The.
I mean the.
The question is that changing the rate environment, but clearly the biggest but we have already done a lot of repricing of some of the transaction accounts.
The time deposit accounts, it's taken a bit longer.
The market in Puerto Rico, it's going to be always a little bit higher than the states.
There may be a possibility of of improvement as we reprice those we've been eliminating some of the brokered Cds that were there.
We still have some longer term repos that are fixed and the cost a lot of money. So we still plan to work on dose.
Okay.
And on there is there is a little bit of a margin on the on that.
The type of those time deposits on taking it down.
To be honest I haven't done a calculation to be able to say how much it could be.
This year, but there will be up your latest points and reduction of it.
Rate stay where they are with repricing of time deposits.
Okay.
Then just final question from me as I think about the reserve level.
And some of the endpoints there I appreciate what happened this quarter and I know, there's probably a fair amount of of.
Of that qualitative aspect to the reserve as well.
No.
Do you do you see the reserve coming down.
More meaningful way before the <unk>.
For the economy, really reopens and fall or do we really need the effect of rollout of the vaccine in the hotel sector to kind of come back on line and things like that before the reserved.
You can come back down to a more historic levels or even year youre sort of seasonal day one level.
The I mean the.
Our portfolios are heavily driven by by the appeal of U macroeconomic variables in the estimation of losses unemployment being a key one on unemployment is really tied up to to what you just mentioned its reopening in.
What we see on those businesses that opex debt recovery of the the hotel industry, we still we see impact.
That's what other retail or.
Commercial real estate, we feel the impact.
If we if that it starts opening up on and the.
Unemployment components on GDP components start to show improvement that should definitely help on on the level of reserves to take it down.
Providential provisioning on the other hunting is going to be a mix of obviously as we put on new loans depends on the on that makes up loans speakers.
The older loans that are repaid because of the timeframe remaining on those loans carry lower reserve.
Percentages as compared to two the new loans that are coming in with full life ahead of.
On the reductions in mortgages do create some reductions in reserves.
So it's going to be a little bit of of makes them that if we see significant improvements we can see the on the economy. I mean, we can see some offsets of.
The reserve on growth require for growth with reserves require being released based on ratios, but its still of a bit of early.
We our assumptions are not that that's going to happen.
Early in the year.
And any of its going to start happening towards the end of the year.
We don't see the need of a large reserve additional provisioning levels I mean, but.
But we do see we do expect to see some some level of provisioning of <unk> being required.
Okay I appreciate that color and just actually one final question as I think about expenses for 2021 as you kind of approach the the full integration of the deal mid year.
Right.
Can you help us think through the synergies and sort of cost expectations coming out of the backside of the year.
Okay.
What the run rate should trend towards.
The okay, a little bit of <unk>.
Few factors come in.
Number one keep in mind that.
Expenses for the second on third quarter of the year were really lower because of the volumes are there on the market. So we should we should based on more of what we saw on on.
As a running rate of starting appoint running rate in December on first quarter of December 19 on first quarter of 2020, which is more of a normalized level the.
The savings are going to come from full integration of the systems.
As we are going to save a good amount of money on processing costs.
Savings are going to come from you know that we instituted a voluntary separation program.
Not all of the people left.
Already from some people left.
And at the end of November but there are other people that are staying true conversions. So those savings we wouldn't start seeing them until the second half of 2021.
Also in the process, we've been investing in some some of our regional changes. We I think we have mentioned this before in some other calls sort of four.
For example.
We're just running out of full change of the teller on platform system.
It's a it's an expensive system is starting to be depreciated, we didn't have that in the expense base before.
But clearly we should.
<unk>.
We should be preliminarily I would say that we should be on that.
Of that range of $120 million to $125 million on expenses.
But we're continuing to work on trying to finalize all of that Alex as we go through all of the different of.
Details of agreements that are in place when when they can be eliminated.
Sales of negotiating some things on when you.
Our auditing the things too to come in.
Things I mean, the increase volume to your full year of current our current contracts. So we're still negotiating some of those and that's when we'll see the full extent of all of the savings that we can finally realize even though we're still true for what we had said before.
As part of the transaction and we have identified a number of components that are very much on track of what we expected.
So at this point on it.
Is that range of what I'm looking at.
By the third quarter of something like that of next year.
As we complete some of the.
The processes.
Of integration on renegotiation.
Okay. Thanks for taking my questions Okay.
Okay. Thanks, Alex.
As a reminder, we do have a question. Please press Star then one the next question comes from Glen Manna K BW. Please go ahead.
Hi, good morning.
Good morning, Glenn Good morning Lynn.
Most of my questions have been asked and answered so I'll just ask one about Ngls.
It looks like you had a recovery in commercial mortgages this quarter and I was just wondering if maybe you could give us some color on that and then in the overall outlook for Ngls, what would your expectations be of peak of Ngos mid next year and then the decline in just how are you kind of thinking about that.
The recovery was weak.
We had a couple of cases.
On the main one was a very old case that was fully charged off.
In the U S and we were able to recover finally that that amount on a smaller amount on another case of them in Puerto Rico.
Those were the recoveries on some of these old cases, you continue to work on.
The the cash.
Cash on its very good.
Muesli.
The fact that we had to put on a lot more.
The reserves on the books.
First indicate that there should be somewhat increased charge offs.
We do believe that we're going to see some some of the implications of moratoriums on pandemic on.
On the business side to start happening in this first half of 2021.
And we do expect that there will be some some charge offs the speed of the recovery could be a driver of when and on how much we.
We end up realizing the.
Of those losses, but clearly.
You don't end of estimating increased reserves without being able to estimate or having to estimate charge offs.
So we should we should see normal levels remember that.
You take consumer portfolio for example.
Moratoriums last set of somewhere between August and September.
Some of them. The 120 days of 180 of the agent credit card you don't start seeing those on the first half of 'twenty and 'twenty one on that when you finally realize how much is really.
Just temporary delinquency these hobbies.
The permanent delinquency that ends up being beaten charge offs.
The commercial side you go more on one on one and Youll start identifying and it's more of an industry related what we're seeing now but.
But clearly we should expect the.
First of all of the year to have higher level of charge offs out of what we had over the last two quarters.
Okay. Thank you.
Okay.
Concludes our question and answer session I would like to turn the conference back over to Jon on for any closing remarks.
Thank you Elisa on the IR front, we look forward the senior virtually.
On February 10th and 11th at the <unk> Winter financial services Symposium as well as March 16th for the cadence of W. Virtual Investor Conference.
We appreciate your continued support and look forward the senior soon.
At this time, we will conclude the call. Thank you.
I'm pretty close now concluded. Thank you for attending today's presentation you may now disconnect.