Q4 2021 OFG Bancorp Earnings Call
[music].
Yes.
Good morning, Thank you for joining O F. G. Bancorp's Conference call. My name is Brittany I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer, and Vice Chair of the board of directors and merits of Arris Monday Chief.
Chief Financial Officer, a presentation that accompanies today's remarks, it can be found on our Investor Relations website at our homepage in the what's new box or in the quarterly results page. This call may feature certain forward looking statements about managements goals plans and expectations. These statements.
<unk> are subject to certain risks and uncertainties outlined in the risk factors section of O F. G. SEC filings actual yourself may differ materially from those currently anticipated we disclaim any obligation to update information disclosed in this call as a result of developments that occur afterward.
Sure.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and instructions will be given at that time.
I'd like to turn the call over to Mr. Fernandez.
Yeah.
Good morning, and thank you for joining us.
Wanted to start our call today thanking all our team members for the excellent work they've done from 2021.
We are extremely proud of our achievements, particularly our focus on helping our customers that your progress and financial wellbeing.
So let's start by turning to page three of our conference call presentation.
Fourth quarter earnings per share diluted was <unk> 66 cents compared to 81 in the third quarter and 42 cents in the year ago period.
Fourth quarter earnings were impacted by our strategic decision to sell $66 million of past due loans.
These loans had already been partially reserved what required $10 million in additional provision.
As for our core business we continue.
To demonstrate strong momentum as we enter 2021 and now entered 2022.
Core revenues totaled $141 million, that's an increase of 5% quarter over quarter and 6% year over year.
Asset quality continued to improve resulting in a $3 million net reserve release, which reduced our total provision to $7 million.
Noninterest expenses increased $8 million, primarily due to increased investments in people and technology.
Pre provision net revenues totaled $56 million similar to the third quarter with 26% greater than last year.
Looking at the December 30th balance sheet, we ended 2021 with $9.9 billion of assets postponing the applicability of Durbin later in the summer.
Compared to September 30th customer deposits declined $641 million to $8 $6 billion that reflects withdrawals at year end.
By government related and institutional and commercial clients.
This was partially offset by increased retail deposits.
Even with the loans, we decided to sell you saw loan growth.
In loans held for investments in all three of our priority areas.
An increase of 5% in commercial loans ex PPP and increase of 9% in consumer loans, an increase of 1% in auto loans.
And new loan origination remained very strong at $633 million for the quarter.
We also successfully execute on our capital allocation strategy, we completed our $50 million share buyback and our capital levels remain robust.
Please turn to page four.
We are also pleased on all the progress we made for the year as a whole earnings per share of $2.81 was up 113%. This was driven by $70 million higher core revenues $92 million, lower provisioning and $20 million lower noninterest expenses.
And pre provision net revenues increased 15% to $250 million.
Looking at the balance sheet total assets increased $74 million customer deposits grew $225 million loans declined $172 million, excluding PPP forgiveness, they increased $24 million new loan origination was a record $2 4 billion.
If we exclude PPP from both years. He was also a record at $2 $2 billion up 790 million $98 million or 56% compared to 2020.
The CET one ratio increased 69 basis points, leaving us in a very strong capital position.
Although capital actions in 2021, including increasing our common stock dividend to <unk> 12 per share from seven seven.
And completing the $92 million redemption of all of our remaining preferred stock.
We sold for both the quarter and a year continue to reflect the four main drivers of our business.
Consistently growing recurring net income driven by loan growth and that includes continuing to build both our Puerto Rico on our U S loan businesses are larger scale, our focus on increasing digital utilization and customer service differentiation and Puerto Rico, beginning to enter a growth economic cycle.
All this continues to validate our optimism regarding the future of Puerto Rico and <unk>.
We continue to transform or G with a focus on simplification and building a culture of excellence and customer service.
Our developing and attracting top talent to deliver on this transformation and continue to invest in technology.
You know some of our technology investments are table stakes and required to continuously upgrade our systems or others require us to focus our technology on investments that drive our strategy, namely digital data and analytics cloud migration cyber security on our sales and service capabilities.
Two quick examples of this in 2020 , one where the deployment of our D. The residential mortgage origination process and our commercial banking data driven business model.
Both our first for the Puerto Rico market.
Oh, Gee with Orange juice unique strategic position and with Puerto Rico's growing economic outlook, we will accelerate these investments to improve the customer experience faster improve efficiency longer term and set the stage for all of <unk> long term growth.
We are extremely proud of our accomplishments and look forward to continuing to grow together with our clients and the communities we serve.
Now heres maritsa to go over the financials in more detail.
Thank you Jose.
I will review our financial highlights.
So that's one.
$141 million that is an increase of about six points.
We're about 5% from the third quarter.
This reflects a $1 5 million.
And that's even better.
And I I reflected net income from non cash interest income from investment securities a $1 million.
Hum.
The decline in interest expense was mainly driven by a lower average.
Well in total core revenues also reflect.
At $4 $7 million increase you talked about.
Our wealth management.
That's reflected in the fourth quarter, you see Oh, I don't want to call me.
So about $4 3 million.
This year compared to $4 million last year.
I'm interested if any growth also disconnected.
Lisa regarding banking services and mortgage banking activity.
Nothing.
So all that ADC.
That is not easy.
$726 million right.
Right.
The fourth quarter concluded.
Great.
There's a lot of investments and costs related to higher.
Let's see.
The quarter also included $2 4 million.
And to call it operational.
$1 billion.
Lower gains on sales.
Compared to the final quarter.
Yeah.
Yeah.
61, 4%.
Yes.
Yeah.
Sure.
Nathan.
Thank you.
Further.
Thanks.
Well our.
Two remaining alone.
Right.
Yeah.
Please proceed.
Please turn them.
At one point.
Yeah.
14.1.
We continue to learn.
Thank you.
It was $19.08.
So for instance from.
From the third quarter.
4%.
Yes.
They tend to say.
Hi.
So that $6 $5 billion.
That is a $40 million from the third quarter.
I agree.
The $4 million.
And I would agree.
Got it.
They can be T V.
Yeah.
Okay.
The decrease in D C D.
Yeah.
Yeah.
Hello.
No.
Held steady at $6 six to go back and it has for most of the year.
There are also consistent.
Well, mainly former Scotia bank.
They see themselves.
Oh.
Right.
So long that work for us.
Right.
And if I may.
Namely one system.
They're all small for myself, what the sale was completed during the quarter.
Yes.
So not a lot of you Nathan.
630.
Did it.
60% to 76.
It is also.
$47 million year over year.
We continue to see high level.
For myself.
Andy.
The man.
Sure.
There's always someone has not increased.
Before.
All right.
Oh nice for $1 million.
Brian .
$19 million from the third floor.
David I can make some withdrawal of course occur at the end of the year.
Yes.
Thank you.
September .
Cool.
There were 26 basis points from the fourth floor.
On a four basis points from the third quarter.
It's just like that.
And they continue my theory of older higher right.
In the fourth floor, we paid down $33.3 million.
98%.
Uh huh.
So it has to.
Two points.
That is a decline of 5% or $146 million.
From the third quarter.
I agree.
Portfolio by $177 million.
Net interest margin was 418% an increase of six basis points from the third quarter.
The increase was mostly driven by site by site.
Five basis points.
Okay.
Okay.
And by the one basis point increase.
Thank you.
Okay.
Please turn to slide seven.
Okay.
Got it got it.
Our quality metrics continue to trend positive.
Fourth quarter nurse herself totaled $32 million. This included $30 million related to the past due loans transferred to held for sale and sale previously mentioned.
Nancy Alright inquiry.
Perfect.
The early and total delinquency rate was 234% and 371% respectively.
Yeah, all right and then obviously the loan portfolio was 198%.
Look I N C O M.
N D C. D was 175% this compares to.
8% in the third floor and coupon and 28% in the year ago quarter.
At this rate or some of the lowest level, we have seen in the last five quarters.
As a result, we had $217 net she.
She's definitely it will be I think for at least one relates to the long term definitely wanting to get on board.
And I want our allowance was two 4% on a reported basis and $2 47 person absolutely.
This easy ratio increased to.
77%.
Helpful.
One 4 billion.
I mean, it's a $15 billion.
The third floor.
This reflects the increasing with that.
Partially upset by the summer.
Besides he wants someone everybody loves that $9, 69%.
No.
Yeah.
Thank you Marie Jos.
Please turn to page eight for our outlook.
The macro situation continues to improve in Puerto Rico, we're seeing continued incremental business sector optimism consumer demand also remains strong in Puerto Rico is at the beginning of an economic growth cycle.
Nation, Puerto Rico is on the verge of exiting bankruptcy. We believe this will go a long way towards changing the mainline perception of Puerto Rico and continued to improve its standing in the business community.
Within this environment, we will continue the strategies that have been working so well for us mainly taking advantage of the economic momentum deploying excess liquidity for loan growth investing in people and technology speeding our digital transformation and enhancing the customer experience.
We at <unk> are more than ready thanks to our resilient team members for their continued dedication and commitment.
With this we end our formal presentation. Thank you all for listening operator, let's start the Q&A.
If you have a question at this time. Please press star one on your telephone keypad, if you wish to remove yourself from the queue. Please press the pound key.
We will take our first question from Alex third toward Hall with Piper Sandler. Your line is now open.
Hey, good morning.
Morning, Alex.
Okay.
Well first off I've got a bunch of questions here, but I wanted to start with.
The loan growth that you guys saw this quarter and I was hoping Jose you could give us some commentary we saw some nice commercial loan growth this quarter.
Looked like a strong quarter for originations.
And obviously, excluding P. P P O.
Is this just sort of the tip of the iceberg on commercial loan growth is right can you maybe comment on the pipelines comment on the pay down activity, you're seeing and give us some extra you know help us.
[noise] about what our expectation should be for the next couple of quarters, starting with the commercial loan growth.
Yep Yep.
So well.
What we're seeing this quarter is again it comes.
Formation of what we have been seeing in the last three or four quarters prior.
Inching up on originations inching up on our loan balances, particularly on the commercial side and on the auto lending side as well off not lately on the consumer portfolio. So oh, yeah, well what I'm feeling right. Now is you know at the beginning of the year I mean last year I mentioned that I was very.
Optimistic my last 17 years I feel is the most optimistic I think throughout 2021 and we saw a confirmation that that optimism is turning into growth for the Puerto Rico economy. So I feel we're in the early innings of economic growth cycle in Puerto Rico now.
Pretty much all the confirmation data, it's pretty much behind us from from last year. So.
I I feel that our loan growth is is here to stay for the next couple of years as the economy continues to grow so what we're seeing here when we look at loan growth is production, we feel that the production and let's call. It loan origination for for 2022, the way I look at it is.
We're going to see higher consumer loan origination we're going to see.
Relatively similar auto loan origination and until most likely similar commercial loan origination, which would you yourself. It's a record year, we had in 2020 . One so so when we look at that scenario on the production side Oh My God I'm excited we are as a team very excited too.
Looking to and deploying our our liquidity here.
Regarding regarding the other components of the loan balances right.
Talk about the nation, but we also need to talk about pay downs.
On the mortgage portfolio, we will continue to have the repayments and I think with interest rates now starting to inch up we'll probably have slower repayments on the mortgage portfolio.
Good for US, we will continue to originate and sell but we will also be a little bit more more focus on nonconforming and retaining a little bit of nonconforming that might be helpful. But we see the portfolio mortgages residential mortgage trending lower.
On the commercial we see a good opportunity for us to build that are particularly on the yeah.
Small and mid sized commercial business clients and we.
We are seeing we're seeing good opportunities there and and I think line utilization is also gonna start trending positively next year, we haven't seen that yet, but we're starting to trend positive.
And then pipelines for 2022 we feel that on the commercial side. The pipelines are strong and and our expectation is that there's going to be a opportunities for us to continue to build on those pipeline. So that's kind of my my take on on a loan and loan growth Alex.
That's really helpful. And then just the last piece of it the P. P. P. Do you expect the remaining 87 million is that gone by mid year and can you. Let us know a rich that you have in front of you, but just the the P. P. P fees that we saw this quarter last quarter and what's remaining in terms of the P. P. P fees.
So it's all on the BBB forgiveness, my our expectation is just that they should be forgiven by the end of the first half of the year.
Uh huh.
So so that's the answer there.
I don't have the data about maritime does have the information on the fees on the PPP.
As for the the seaport $2.3 million.
One $4 million last quarter, we still have about $5 million in you know what I'm, what I'd see it yet.
Okay.
I'm sorry can you repeat it one more time, you just broke up a little bit you said three but I think you said 3.4 last quarter $5 million left what was it this quarter.
Just wanted to point $3 million.
2.3 and for Q, Okay. Thank you very much for that.
And then I wanted to ask you know.
Big announcement yesterday from the bankruptcy judge are kind of sticking to find the end of bankruptcy.
Certainly you know you kind of addressed it a little bit in your prepared comments sort of what the implications could be and it certainly proves the sentiments around the island, but I'm just you know as you think out.
Are there any direct implications for you guys does it impact.
Things like your capital plan and you know.
As you kind of thing.
Say that the island is no longer in bankruptcy.
So let me step back a second here on that on that question because I think it's important.
Think about this the last 10 years prior to 2021.
Rico's economy contracted.
Right up 2%, so that's 20% it for 10 years, So we had a 20% contraction.
We went to bankruptcy, we had all the issues that everybody knows.
So when we look at now 'twenty, 'twenty, one and beyond and I mentioned the growth cycle.
Particularly because of all the.
Stimulus that it's coming in and now they'll be building in the funds from the Maria and the.
And the earthquakes coming in.
What do they go out it's in a great position right now so so now Puerto Rico has.
Thanks.
Basically has moved from a depression Mary deflationary 10 year cycle into the early stages of a growth cycle. So how does the although the exiting of bankruptcy play into all of this well, it's certainly very positively because first.
Of all.
Got rid of a bunch of our debt that we have to pay and the loss that we were supposed to pay in the last 10 years.
But more importantly, they are guardrails put in place for for the for the government to invest in the infrastructure and use those federal stimulus and federal funds for.
For reconstruction to build the infrastructure in Puerto Rico are investing education investing you know strengthening of the power authority and the prioritization that is going on so all those things are at the early stage and for me getting out of a bankruptcy is going to allow eventual in Puerto Rico.
Do things right to.
Access to the markets and be able to expand that growth cycle that.
That is beginning right now.
Yes.
Great and then just two more questions for me one you know with with respect to your capital actions your capital plans I know, sometimes you announce it.
And I'm not quite an update to the dividend or the buyback at the end of January last year. We returned over 100 per cent earnings when you add up the buyback that preferred retirement and at the two dividend increases.
Is there any reason why with 13, 8% common equity tier one we should not expect another year of pretty large capital return in 2022 .
No. There's no reason for it I mean, there's no reason for you not to think about those things I think youre correct, but let me tell you what our priorities are regarding capital.
First and foremost our capital we want to deploy it in in good long growth in good loans, and ER and be able to deploy it to to help the communities and the customers that we serve so so that's number one number two in the priority is looking.
Looking at the dividend and making sure that you continue to.
Growing dividend and then also expect us to be active with the share repurchase we finished the hmm prior authorization. So so more to come with it.
Great and then my correct and the timing sort of end of January end of July as the two times. So we could potentially get an update next week.
Yeah, Youre right on the timing.
Great and then just my final question I noticed you guys dropped right below 10 billion at the end of the year does that effectively pushed durbin out a full year.
So so I tried to mention it on the yeah. My my remarks Durbin.
Whereby the above $10 billion by December 31st Durbin would have triggered on July 1st.
We would've had a half year impact in terms of.
Fee income would have about a half a year impact in 2022 now that half of your impact will not materialize, because we close the year below $10 billion.
Fantastic so that effectively takes the $10 million or so of interchange fees that you would have lost in this back half of 'twenty two in early 2023 and effectively.
Pushes that impact out a year, assuming you guys continue to grow.
Actually pushed it out yet.
For 2022, we would have been 4.1 or $4 $2 million because he would have been half a year and for a full year. It would have been $10 million or so so we actually pushed it all the way to July of 2023.
Hi, Thanks for taking my.
Thanks for taking my questions Yeah. Thank you for your questions.
And we will take our next question from Brent Rabbit tenant with Hungry group. Your line is open.
Hey, good morning, everyone.
Hi, Brian welcome to our call.
[laughter] one of the first half.
I suppose I should say welcome back.
[laughter] yeah. Thanks, it's good to be back.
Yeah, I guess first question wanted to go over a little bit the loan sales for the quarter of the of the past due loans. If you could give us some more color on it.
The loans, you've made or the the loans that you sold the decision to to sell those loans and then of the 32, two and a half million of that charge offs for the quarter.
It sounded like those were a preponderance of of related to that how much of the 32 and a half alien was related to those loans that you saw.
So Brett I.
I understood clearly your first part of the question, but I couldn't understand the second part let me answer the first part and then you can ask me. The question again, if that's okay with you. So sure why why what what came about us doing via the loan sales. These these are scotiabank as Melissa mentioned these are Scotia bank legacy.
A residential mortgage loans, mostly.
One commercial loan.
As part of the acquisition they were most of them most of them were on a P. C D bucket and and frankly, the residential loans have had several years of of nonperforming loans nonperforming. So yeah. It was becoming too cumbersome for us to manage you know I'd, rather I'd add resources.
To try to get those those loans out of the books. So so we decided to sell and get out of the way. So we can focus on what's important. We're also trying to be efficient in all of them at the end of the day the strategic logic behind it is how can we move some of our resources that are on the AR on the work outside.
And put them on the front side. So we can bring in more known business. So that's also part of the Oh the thought process that we had there on the commercial loan that we sold it's again the same the same dynamic it's a participation and it's not necessarily a it's been performing for a while and we felt that he was the right.
Decision to.
Get it out of the books also at the end of the year. So that's kind of the the.
The thought process behind it and you ask the second part of your question.
Yeah sure Oh, sorry, the second part of the question was just the I think in the press release, you noted that a significant portion of the net charge offs of 32, and a half million were related to blown sales how how much specifically was voyage and loan sales in terms of net charge offs.
$30 million, so I don't know 30 million out of that.
Sure.
Sure.
Yeah.
Okay.
Okay. That's for net charge offs, excluding that we're pretty we're actually pretty pretty.
Pretty modest and then as it relates to that just I did notice that the the linked quarter early delinquencies were up a little bit was there anything that was I'm kind of driving that linked quarter.
Yeah, that's you see the the auto and portfolio.
Portfolio, we had a little bit of higher early delinquency. There we're looking into it we feel that our we got our hands around that pretty well and we will we should we should have a that trending back again to where it should be it.
And since you're asking me about the credit.
We will continue to see credit very benign compared to you know what we have managed the prior 10 years as you can imagine so so going forward, we feel that we have that as a background to wear.
Certainly we will have.
To deal with on the consumer book, we'll see the the charge of starting to come in sometime.
In the near future as part of the normal process of getting back to a normal state of the economy.
The stimulus that was put in.
But we don't see that going back to the levels prior to the pandemic, we see them, we see those levels and better than and then so.
That's kind of how we're seeing it.
Okay.
And then Jose Rafael.
I'm curious or maybe this is a better question for Maria but I'm just thinking about the margin I know at the end of last quarter, you know for 100 basis point increase the.
NII upside was was a little over 4%, but it would seem like that could be.
Conservative with with cash still being 25% of the balance sheet and with the fed you know, possibly raising three or four times. This year would seem like your margins going to benefit you know throughout the year from from fed action.
Alright. So can you talk maybe about how you think about you know a fed hike fed hikes impact on the margin and kind of how you see the margin playing out throughout the year.
Yeah. So we as you pointed out we are asset sensitive.
Cash will be impacted immediately so all those things play in our favor. We also have a quite a bit of a variable rate lending on the commercial portfolio. So let me let me just.
To give you some some color on it but the specifics will come on the 10-K, when we publish it later and I think it would be in February early February but.
We will be net interest income on a 100 basis point shock.
Yeah.
The impact of interest rates will be will be affected positively in the high single digits. So so that's kind of how we're seeing it right now we continue to look at all of the modeling and all these scenarios and we'll we'll give you the specifics on the 10-K, but that's kind of how that looks like.
Okay.
Okay.
And then wanted to ask about the expenses you know there was obviously you know some some hires Oh I guess my first start with that just what you know.
What were the hires in the quarter did you did you add any lenders you know what maybe talk about the buyers you made and then thinking about the.
The other bucket you know is that a level that continues from <unk> or does that come back unless we go throughout this year.
So we we really let me just address that from a different angle.
With the great resignation that everybody's thinking about well, we're seeing you know on our side is on the our hourly employees in the.
Where we're seeing more turnover. So we've had to go out there and and recruit some of those.
Place and make sure that we keep the housing order in terms of customer service.
We continued to attract good talent, particularly on the.
Yeah.
Consumer side on the retail side, we have a great team on the commercial side as well and we've been building remember we when we acquired Scotia Bank. We also acquired a bunch of our commercial bankers. So we are we're good there.
But on the consumer side on the and on the retail side I think we've done a excellent hires in the past and we continue to do so to attracting and retaining and developing our talent. So that's kind of how we're looking at our people strategy. We wanted to make sure that Oh, we have the.
The the right talent for the future and and develop that talent with the potential they have.
That's kind of what where we're coming from we really lowered or had lower our employees this quarter than the prior quarter, but it's pretty much coming from from the hourly employees, where we're having a higher turnover than the unusual.
Okay, and then on the G&A expenses the other the other line item.
That.
39 kind of three or four number for the fourth quarter is that a good run rate going forward or I assume with the technology.
Expenses from somebody other things, maybe that number could come back a little bit.
So that's why I might need some guy did you guys with an efficiency ratio in the low Sixty's you know we we we feel we're in a unique position here in the market. We don't break we we really are.
Confident that.
Our our vision on how to you know get closer to the customer and do a better job incrementally on on how we service that customer and how we add value to the customer we feel we're in a unique position in this market and we need to continue to invest and actually increase the speed of the techno.
R&D investments so that we can aim effect change faster. So so from that perspective is that were coming in were looking at people. We're looking at technology, not I'd say a.
It's a solution for everything, but I say as a means to actually deploy and execute on our sales and service strategy and ER and be able to take advantage of all the benefits that our technology is providing us on in the markets in general with our data analytics and.
Cloud migration and be able to.
<unk> be more proactive taking care of our customers. So the market we operate here in Puerto Rico.
We need to be on top of that in order for us to continue our differentiation and that's kind of what we're doing we're very being very.
Decisive in those investments because we think it's the right thing to do today and they will bring those are the incremental differentiation to into the future.
Okay. That's correct color I appreciate that and congrats on the quarter.
Thank you. Thank you very much.
Again, if you would like to ask a question. Please press. The Star then the number one on your telephone keypad.
Well take our next question from Tomorrow, Brazil present, there with Wells Fargo. Your line is now open.
Hi, good morning, Thanks for the questions.
Hi, Good morning, welcome to the call.
Thank you. Thank you and maybe just starting with the deposit outlook. I know you mentioned that you had some government related withdrawals and some institutional client activity I guess, what are you thinking about deposits in 'twenty two doesn't much of that come back online and then as far as government deposits.
Just give us a balance and then what's your expected to exit its kind of be a bankruptcy resolution here in the near term.
So so overall in deposits are we feel that.
We're gonna have those most of those deposits come back in.
And it's probably going to come back in the first half of the year. So that's kind of where we see that on the government side I'll, let him give you a number because I don't have it off the top of my head.
Well, yeah and.
Just to make sure I get it and to your question is how much dormant.
He made it in the past.
Well it was wrong coming back or how much you have at this moment on once we have all of that how much will happen.
Yeah.
Got it.
And I mean.
We have to.
You know what he's doing.
We still have to get there.
So historically, we don't we don't consider it.
The the government deposits are not a core part of our business.
Okay.
Then maybe transitioning over to balance sheet mix and margin.
The decline in deposits and the subsequent decline in cash balances it looks like much of that happened at year end and not really reflected in the average balances should we see the margin tick up pretty meaningfully here in the first quarter to reflect that mix shift or is there something else going on that might keep margin levels over to Laura.
I think dad for any day now.
Can you give us margin changes during this quarter, we started to see a pick up there we will continue.
There are base cases Tonight is that it will continue to spend easily.
We are investing along that on Sunday and the changing of the Boston me. So.
So we we saw it and getting the ball during the third quarter for a lot of work.
Got it.
He has to increase during the quarter, but into next year.
Okay. That's helpful. Thank you maybe switching to allowance the allowance ratio is still pretty high at these levels. I'm wondering was there an ability to fully absorb the charge offs from the loan sales through additional reserve releases, rather than provisioning for them and then.
I guess, how does that translate to the current node to forties reserve level from here, how should we see that trend.
Yeah.
So I go into the details, but big picture.
The answer is no we couldn't we couldn't because we need to follow the seesaw methodology again.
Means our you know the economics.
Scenarios, we need to look at the balance of loans and we need to look at charge offs and then and then we look at the.
Quality papers and on the walls and all that stuff.
So I don't think we could have done that.
Particularly.
Specifically in this transaction.
So, but I'll, let maritza answer the second part of your question regarding the auto how do we see the the allowance trending into the future.
Yeah. Thank you.
And I guess what.
And I think that's.
Then the elements that come into the model.
And we do have a coupon of three 4% allowance coverage.
We see going forward.
The asset quality continues its asphalt excuse me I am I learned my lesson.
Things are going down.
Hum.
Or are they one T cell.
Coverage or maybe better I work for it I think that it would be probably better because of the scenario.
Yes.
I'm much better done they won a T cell and.
So, but that's how we see it we need to see here.
Considering may send off our expectation on that on the asset quality trend that so far has been there we have seen that.
A couple of our Florida.
Hum.
And I Wanna.
Will go down.
Absolutely absolutely.
Got it.
Florida.
Okay. That's helpful. And then last for me just circling back to expenses you called out 2 million of tech spend in the quarter and then during your prepared remarks talked about accelerating some of the tech spend you know the efficiency ratio guidance that you provided and just the overall mixture.
It would then be expense bucket.
Is technology going to become a larger component of the annual tech spend and does the 2 million kind of spent this quarter stick around in the run rate and get built on or does it fall off at some point out of some of these projects and initiatives come to completion.
So now that he's going to have a larger component.
I'll answer the questions.
If it got to be one 2 million dollar going to translate into ongoing number it's hard to tell because it depends on how do we execute on some of these technology projects and when they come out and how we start capitalizing those those investments so but they they will start coming in and that's why we feel that a part of ours.
Slapping you can kind of give you guys a heads up that we're doing that but it again. It is with the objective of having a return on that investment are executing on our strategy.
Great. Thank you very much.
Yep. Thank you for your questions.
Cummins.
And we do have a follow up question from Alex toward Hall with Piper Sandler. Your line is now open.
Yeah.
Thanks, just a couple of follow up questions. One on the efficiency guide to the low sixties, what what's the assumption on interest rates there.
Yeah.
I guess, that's one question.
Yeah, we will we will.
Not my answer to that question is Alex.
He led the fed speak.
And we'll go from there the effect has spoken they have given a guidance on where rates would be looping or how they would be looping. So so that's kind of our assumption here Oh, and then how that will affect our our balance sheet will update you on the 10-K with the shock analysis.
Okay, I guess, just asking in a different way if we do get.
Or six or whatever the forward curve is expecting at this point and you do get that high single digit up NII.
Helping revenues is is a mid fifties efficiency ratios still a feasible or would you.
Yeah I'm glad you asked that question no I mean, I think I think our targets remain to be a mid fifties.
Efficiency ratio bank.
We're talking about 2022 and so so again, we're we're we're trying to pick.
Take advantage of where we are positioned right now as I mentioned in the end.
And accelerate some of some of these investments but.
Yeah.
But it is still longer term, meaning further than 2022 targets of mid fifties, our efficiency ratio is still still apply so again, we that's kind of how we view this on and how we are.
Thinking about the.
Low sixties efficiency.
Efficiency guidance that we're sharing with you.
Okay understood and then on the balance sheet optimization question you guys did some securities lettering and I think the third quarter rates are now at 50 basis points from there.
The expectation for some of those deposits he started coming back in in the first quarter and I'm sure you'll get a nice boost in the child tax credit also seems like you're still sitting on a huge amount of liquidity to do all sorts of things with I mean is there a strategy to continue later and some of that cash into securities.
Yes.
Any sense for how much you'd be willing to purchase in any given quarter.
We have to get decided on how well how in terms of quantity I I don't have the number but we need to think of you know sit around and decided but again.
It's gonna be incrementally increasing.
Okay, Great and then just circling back on the reserve question. The the charge offs, the 2% charge off this quarter, obviously, the bulk of that related to the loan sale. When you think about the seasonal model.
Does that get incorporated in your loss history or what the law says when you see somebody else would be more like a 50 basis point core loan book that remains.
We exclude that.
Okay.
Okay.
Awesome, So youre looking more like a 15 basis point net charge off our loss rate, maybe that's a little bit low relative to where it will shake out over the next couple of quarters, but still a lot lower than where it was and much more comparable to a mainland banks. While your reserve is still double got it yeah. That's why we mentioned the.
The benign credit environment.
Great. Thanks for taking my follow ups.
Yep. Thank you. Thank you for your question.
And we do have a follow up from Brett Robinson with hub group. Your line is now open.
Yeah.
Yeah, just to follow up quick follow ups, one the legal reserve that you guys did.
Did this quarter can you maybe give any color on what that was related to.
Yep, that's finishing up or cleaning up the legacy.
Arbitration cases on the broker dealer from the actually.
Uh huh from the Puerto Rico municipal debt bankruptcy issues. So you know we've had to build up some legal reserves for that and are in the quarter. We took some reserves for that.
What it is all about.
Okay.
And then O F. G. USA you know any any update on what their you know what their pipeline looks like and how you think that might be a contributor to your growth this year.
So, but we will continue to execute the U S alone. We've been added for four years now as you recall, we started in 2017 after hurricane Maria.
And Hum and frankly, we have been building a nice good portfolio, we have great relationship with some of our partners in the in the stage two and we build a team around it and and it's becoming a incrementally.
More wheels, so we're very happy with that portfolio, we will continue to build on it and yes, we have been doing 2021 we did and and 2022 will be the same. So that's how we see that and I guess, it's part of a well. It's also deploying some of our capital and I'm thinking in advance.
That drove a diversifying our risks geographically so.
Again, we feel that the.
The pipelines are our I would call it equal equality as strong as what we're seeing in Puerto Rico.
Okay, and then maybe one one last one just on capital and just thinking about the.
Relative levels and you know it would seem like if if Puerto Rico is finally, turning a corner you know it seemed like the regulators would be a more amenable to you know maybe less of a buffer for Puerto Rico relative to the U S. Can you talk maybe about.
If you think that might be the case and.
If so you know besides buybacks you know there are there any is there anything else that you're thinking about in terms of trying to.
Further improve your your relative profitability on the capital base.
I I don't really think that that the regulators would would be.
Allow us to be at very much more aggressive than what we have been I think oh they are.
As we are all very close to what has happened recently in the recent past here in Puerto Rico. So I think it will take a couple more years for for them too.
To think about Puerto Rico.
I would say from a risk perspective, similar to the U S jurisdictions.
And that's kind of my my own opinion, I am you're sharing my opinion, but yeah.
And so so we operate with.
Then I went to Rome, and capital perspective, we operate with a.
With a view of we are having good earnings growth, we are having a good momentum we have excess capital if we don't see opportunities to deploy that capital in the markets. We operate then we need to return that capital to shareholders and then we do the numbers and.
More to come throughout 2022 on the same on the same capital management strategies.
Okay, Great appreciate all the color.
You're welcome.
At this time there are no further questions I will turn the program back over to Mr. Fernandez for any closing remarks.
Thank you operator, thanks again to all our team members for their hard work and dedication throughout the past year.
We look forward to a great 2022. Thank you all to all to all our stakeholders who are listening today.
Goodbye.
This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
Yeah.
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Yeah.
Uh huh.
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