Q1 2024 Popular Inc Earnings Call
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Operator: Hello all, and welcome to Popular Inc.'s first quarter earnings call. My name is Lidia, and I'll be your operator today. If you'd like to ask a question after the prepared remarks, you can do so by pressing star followed by the number one on your telephone keypad. I'll now hand you over to your host, Paul Cardillo, Investor Relations Officer, to begin. Please go ahead.
Speaker Change: Hello, All and welcome Jay Popular Inc. First quarter earnings call.
Lydia: My name is Lydia and I'll be your operator today.
Speaker Change: If you'd like to ask a question. After the prepared remarks, you can do so by pressing star followed by the number one on your kind of think he badge.
Speaker Change: I'll now hand, you over to I will call de La <unk> Investor Relations officer to begin. Please go ahead.
Speaker Change: Okay.
Paul Cardillo: Good morning, and thank you for joining us. With us on the call today are our CEO, Ignacio Alvarez, our COO, Javier Ferrer, our CFO, Jorge Garcia, and our CRO, Lidio Soriano. They will review our results for the first quarter and then answer your questions. Other members of our management team will also be available during the Q&A session. Before we begin, I would like to remind you that on today's call, we may make forward-looking statements regarding Popular, such as projections of revenue, earnings, expenses, taxes, and capital structure, as well as statements regarding Popular's plans and objectives.
Speaker Change: Good morning, and thank you for joining us.
Speaker Change: On the call today is our CEO Ignacio Alvarez, our CFO Javier for our CFO Jorge Garcia.
Speaker Change: Crow video Suriano.
Speaker Change: Today, We'll review our results for the first quarter and then answer your questions.
Other members of our management team will also be available during the Q&A session. Before we begin I would like to remind you that on today's call. We may make forward looking statements regarding popular such as projections of revenue earnings expenses taxes and capital structure as well as statements regarding popular its plans and objectives.
Paul Cardillo: These statements are based on management's current expectations and are subject to risks and uncertainty. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in today's earnings release and our SEC filing. You may find today's press release and our SEC filings on our webpage at Popular.com. I will now turn the call over to our CEO, Ignacio Alvarez.
Speaker Change: These statements are based on management's current expectations and are subject to risks and uncertainties.
Speaker Change: Factors that could cause actual results to differ materially from these forward looking statements are set forth within todays earnings release, and our SEC filings you may find today's press release, and our SEC filings on our webpage at popular Dot com.
Speaker Change: I'll now turn the call over to our CEO Ignacio Alvarez.
Ignacio Alvarez: Good morning, and thank you for joining the call. We are pleased to report a solid first quarter, an income total of $103 million, which includes the impact of an additional accrual for the FDIC Special Assessment and a tax expense related to prior intercompany distributions. Excluding these items, net income would have been $135 million compared to adjusted net income of $140 million in the previous quarter. The results in the first quarter were driven by higher net interest income and a lower provision for credit losses, offset in part by lower non-interest income and a slightly higher operating. Our ending loan balances increased by $54 million during the quarter, with large commercial payoffs impacting both banks.
Good morning, and thank you for joining the call.
Ignacio Alvarez: We are pleased to report a solid first quarter net income totaled $103 million, which includes the impact of an additional accrual for the FDIC special assessment.
Ignacio Alvarez: <unk> expense related to prior intercompany distributions.
Ignacio Alvarez: Excluding these items net income would have been $135 million compared to adjusted net income of $140 million in the previous quarter.
Ignacio Alvarez: The results in the first quarter were driven by higher net interest income and a lower provision for credit losses offset in part by lower noninterest income.
Ignacio Alvarez: Slightly higher operating expenses.
Ignacio Alvarez: Our ending loan balances increased by $54 million during the quarter with large commercial payoffs impacting both banks our average loan balances however increased by $612 million driven by a substantial amount of loan activity towards the end of the fourth quarter.
Ignacio Alvarez: Our average loan balances, however, increased by $612 million, driven by a substantial amount of loan activity toward the end of the fourth quarter. EPPR generated loan growth of $124 million, driven by growth in mortgage and auto loans, offset in part by decreases in personal and commercial loans. Popular Bank saw a $70 million decrease in loan balances, driven by commercial loan payoffs that offset growth in construction loans.
Ignacio Alvarez: <unk> generated loan growth of $124 million driven by growth in mortgage and auto.
Ignacio Alvarez: Set in part by decreases in personal and commercial loans.
Ignacio Alvarez: Popular bank, sorry, $70 million decrease in loan balances driven by commercial loan payoffs that offset growth in construction loans.
Ignacio Alvarez: Deposit balances increased by approximately $191 million, driven primarily by a higher level of retail demand deposits in BPPR, which increased by $232 million, offset somewhat by lower Puerto Rico public deposits. Our net interest margin increased by 8 basis points to 3.16%, mainly driven by higher average loan balances and the repricing of loans and securities in a higher interest rate environment. This is partially offset by higher deposits. Non-interest income remains solid at $164 million. Excluding the additional FDIC assessment and the expenses associated with the prior period tax expense.
Ignacio Alvarez: Deposit balances increased by approximately $191 million, driven primarily by a higher level of retail demand deposits and PPR, which increased by $232 million.
Ignacio Alvarez: Offset somewhat by lower Puerto Rico public deposits.
Ignacio Alvarez: Our net interest margin increased by eight basis points to 316%, mainly driven by higher average loan balances and the repricing of loans and securities and a higher interest rate environment.
Ignacio Alvarez: This was partially offset by higher deposit costs.
Ignacio Alvarez: Noninterest income remained solid at $164 million.
Ignacio Alvarez: Excluding the additional FDIC assessment and the expenses associated with the prior period tax expense.
Ignacio Alvarez: Operating expenses increased by $3 million. However, credit quality terms remain generally favorable with slightly lower NPLs and delinquencies. We have continued to see credit normalization in the Puerto Rico unsecured consumer segment, which began in the second half of last year, and we continue to be attentive to the evolving credit landscape. Tangible value per share increased by $0.32 as our quarterly net income was offset in part by dividends and an increase in unrealized losses in our investment portfolio. Please turn to slide four.
Ignacio Alvarez: Operating expenses increased by $3 million.
Ignacio Alvarez: Credit quality trends remain generally favorable with slightly lower npls and delinquencies. We have continued to see credit normalization in the Puerto Rico unsecured consumer segments.
Ignacio Alvarez: Which began in the second half of last year, and we continue to be attentive to the evolving credit landscape.
Ignacio Alvarez: Tangible book value per share increased by 32 cents as our quarterly net income was offset in part by dividend and an increase in unrealized losses in our investment portfolio.
Ignacio Alvarez: Please turn to slide four.
Ignacio Alvarez: Last year we crossed a significant milestone in Puerto Rico and now serve more than 2 million unique customers. We believe that there continues to be an opportunity to deliver more value in services to our clients and deepen those relationships. For the past two years, we have been engaged in a company-wide transformation, and we are confident that these efforts will help us capitalize upon that opportunity. Consumer spending remained healthy. Combined credit and debit card sales increased by 2% compared to the first quarter of 2023.
Ignacio Alvarez: Last year, we crossed a significant milestone in Puerto Rico, and now served more than 2 million unique customers.
Ignacio Alvarez: We believe that there continues to be opportunity to deliver more value and services to our clients and.
Ignacio Alvarez: And deepen those relationships with.
Ignacio Alvarez: For the past few years, we have been engaged in a company wide transformation and we are confident that these efforts will help us capitalize on that opportunity.
Ignacio Alvarez: Consumer spending remain healthy combined credit and debit card sales increased by 2% compared to the first quarter of 2023.
Ignacio Alvarez: Our auto loan and lease balances increased by $80 million compared to the fourth quarter as demand for new cars continues to be strong in Puerto Rico. Mortgage loan balances at BPPR increased by $92 million in the first quarter, driven primarily by home purchase activity and our strategy to retain FHA loans in portfolios.
Ignacio Alvarez: Our auto loan and lease balances increased by $80 million compared to the fourth quarter as demand for new cars continues to be strong in Puerto Rico.
Ignacio Alvarez: Mortgage loan balances ability are increased by $92 million in the first quarter, driven primarily by home purchase activity and our strategy to retain FHA loans in portfolio.
Ignacio Alvarez: The Puerto Rico economy performed well during the quarter. Business activity is solid, as reflected in positive trends in total employment and other economic data. The tourism and hospitality sector continues to be a source of strength for the local economy. Passenger traffic at San Juan International Airport increased by 12% in the first quarter compared to the first quarter of 2023. Additionally, in March, the hotel occupancy rate increased to 84% from 79% in March of 2023. The average daily rate in REPAR increased by 10% and 17%, respectively, compared to the same month a year ago.
Ignacio Alvarez: The Puerto Rico economy performed well during the quarter business activity is solid as reflected in the positive trends and total employment and other economic data.
Ignacio Alvarez: The tourism hospitality sector continues to be a source of strength for the local economy.
Ignacio Alvarez: Passenger traffic at the San Juan International Airport increased by 12% in the first quarter compared to the first quarter of 2023. Additionally in March the hotel occupancy rate increased to 84% from 79% in March of 2023 the.
Ignacio Alvarez: The average daily rates, and Revpar increased by 10% and 17% respectively.
Ignacio Alvarez: Paired to the same month a year ago.
Ignacio Alvarez: There is a significant amount of committed federal funds that have yet to be disbursed. The pace of disbursement of these funds has accelerated, and we anticipate that they will support economic activity for several years. We are encouraged by the performance of the Puerto Rico economy. We remain optimistic about the future of our primary market and are well positioned to support our clients in the coming years. In short, we are pleased with the results for the quarter, particularly in Puerto Rico, where continued loan growth and the strength of our deposit phase helped contribute to our increase in net interest income and support our optimistic outlook for the balance of the year. On that note, I now turn the call over to Jorge for more details on our financial results.
Ignacio Alvarez: There are a significant amount of committed federal funds that have yet to be dispersed the pace of disbursement of these funds as accelerated and we anticipate that they will support economic activity for several years.
Ignacio Alvarez: We are encouraged by the performance of the Puerto Rico economy, we remain optimistic about the future of our primary market and are well positioned to support our clients in the coming years.
Ignacio Alvarez: In short we are pleased with results for the quarter, particularly in Puerto Rico, where continued loan growth and the strength of our deposit base helped contribute to our increase in net interest income and support our optimistic outlook for the balance of the year.
Ignacio Alvarez: On that note I'll now turn the call over to Jorge for more details on our financial results.
Jorge Jose Garca: Thank you, Ignacio, and thank you all for joining the call today. As Ignacio stated in his remarks, we reported net income of $103 million in the first quarter. Explaining the effect of the FDIC assessment and the tax expenses related to prior-period intercompany distribution, adjusted net income was $135 million, $5 million lower than the prior quarter's adjusted resources. Although the quarter had some noise because of these two items, we are pleased with the core results, particularly NII growth and the expansion of NIM.
Jorge Jose Garca: Thank you Ignacio and thank you all for joining the call today.
Jorge Jose Garca: Stated in his remarks reported net income of $103 million in the first quarter, excluding the effect of the FDIC assessment and the tax expense related to prior period intercompany distributions.
Jorge Jose Garca: Adjusted net income was 135 million $5 million lower than the prior quarter's adjusted results.
Jorge Jose Garca: Although the quarter had some noise because of these two items. We are pleased with the core results, particularly the NII growth and the expansion of the NIM.
Jorge Jose Garca: Net interest income increased by $17 million in the quarter.
Jorge Jose Garca: Our net interest margin increased by eight basis points on a GAAP basis, and 12 basis points on a tax equivalent basis, driven by higher average loan balances and the repricing of loans and securities.
Jorge Jose Garca: Net interest income increased by $17 million in the quarter. Our net interest margin increased by 8 basis points on a gap basis and 12 basis points on a tax-equivalent basis. Because of higher average loan balances and the repricing of loans and security, we should continue to see NIEM expansion throughout the rest of 2024.
Jorge Jose Garca: We should continue to see NIM expansion throughout the rest of 2024.
Jorge Jose Garca: Consistent with our previous guidance, we expect our 2020 for NII to increase by approximately 9% to 13% from 2023 levels.
Jorge Jose Garca: Loan growth this quarter was lower than recent trends driven by the early repayment of two large loans totaling around $200 million and.
Jorge Jose Garca: Consistent with our previous guidance, we expect our 2024 NII to increase by approximately 9 to 13% from 2023. Loan growth this quarter was lower than recent trends, driven by the early repayment of two large loans totaling around $200 million and decreased loan demand in the U.S. mainly. The underlying economic activity in Puerto Rico remains strong, and as such, we continue to expect long-term growth of 3 to 6% in 2024.
Jorge Jose Garca: And decreased loan demand in the U S mainland.
Jorge Jose Garca: The underlying economic activity in Puerto Rico remained strong and as such we continue to expect loan growth of 3% to 6% in 2024.
Jorge Jose Garca: Yeah.
Jorge Jose Garca: Noninterest income was $164 million, a decrease of $5 million from Q4, driven by lower contingent commissions in our insurance business, which are usually recognized in the second and fourth quarter of each year.
Jorge Jose Garca: We continue to expect noninterest income to be approximately $160 million to $165 million per quarter in 2024.
Jorge Jose Garca: We were also pleased to see stable credit metrics and the early benefits of changes we implemented to address the credit losses that arose late last year in our consumer loan portfolio.
Jorge Jose Garca: Non-insured income was $164 million, a decrease of $5 million from Q4, driven by lower contingent commissions in our insurance business, which are usually recognized in the second and fourth quarters of each year. We continue to expect non-interest income to be approximately $160 to $165 million per quarter in 2024. We were also pleased to see stable credit metrics and the early benefits of changes we implemented to address the credit losses that arose late last year in our consumer loan portfolio.
Jorge Jose Garca: The provision for credit losses was $73 million compared to $79 million in the fourth quarter.
Jorge Jose Garca: Total operating expenses were $483 million, including the additional expense of $14 million related to the FDIC special assessment and $6 million in expenses related to the late payment of taxes from prior period intercompany distributions.
Excluding these two items operating expenses were $462 million, an increase of $3 million from Q4's adjusted operating expenses.
Jorge Jose Garca: Are there significant expense variances in the quarter were higher personnel costs by $21 million, mainly due to annual incentive awards and payroll taxes, which are traditionally higher during the first quarter of the year.
Jorge Jose Garca: The provision for credit losses was $73 million, compared to $79 million in the fourth quarter. Total operating expenses were $483 million, including the additional expense of $14 million related to the FDIC special assessment and $6 million in expenses related to the late payment of taxes from prior period intercompany distributions. Excluding these two items, operating expenses were $462 million, an increase of $3 million from Q4's adjusted operating expenses. Other significant expenses in the quarter were higher personal costs by $21 million, mainly due to annual incentive awards and payroll taxes, which are traditionally higher during the first quarter of the year, and higher credit card processing expenses by $6 million, mainly due to lower volume-driven rebates in the first quarter.
Jorge Jose Garca: And higher credit card processing expenses by $6 million, mainly due to lower volume driven rebates in the first quarter.
Jorge Jose Garca: These expenses were offset in part by a decrease in professional fees by $10 million, mainly related to regulatory consulting fees and other advisory expenses.
Business promotion expenses were also lower as these are typically higher in the fourth quarter.
Jorge Jose Garca: Notwithstanding the impact of the incremental FDIC expense and expenses related to the tax liability from their prior period distributions. We continue to expect annual expenses in a range of $1 89 to $1 95 billion for 2024.
Jorge Jose Garca: Our effective tax rate for the quarter was 35% due mainly to having recorded $17 million in income tax expense related to prior period intercompany dividends from our U S subsidiary to the Puerto Rico Bank holding company.
Jorge Jose Garca: These expenses were offset in part by a decrease in professional fees by $10 million, mainly related to regulatory, consulting fees, and other advisory expenses. Business promotion expenses were also lower, as these are typically higher in the fourth quarter.
Jorge Jose Garca: These dividends are subject to a 10% federal tax withholding and ordinary income tax in Puerto Rico that we failed to pay for several years.
Jorge Jose Garca: Therefore, these results reflect the cumulative effect of correcting this oversight.
Jorge Jose Garca: Notwithstanding the impact of the incremental FDIC expense and expenses related to the tax liabilities from their prior period distributions, we continue to expect annual expenses in a range of $1.89 to $1.95 billion for 2021. Our effective tax rate for the quarter was 35%, due mainly to having recorded $17 million in income tax expense related to prior period intercompany dividends from our U.S. subsidiary to the Puerto Rico Bank Holding Company. These dividends are subject to a 10% federal tax withholding, an ordinary income tax in Puerto Rico that we failed to pay for several years. Therefore, these results reflect the cumulative effect of correcting this oversight.
Jorge Jose Garca: Excluding the impact of the FDIC special assessment and their prior period tax matter the effective tax rate would have been 25%.
Jorge Jose Garca: This adjusted effective tax rate in Q1 also reflects approximately $7 million in income tax expenses are rising from a $50 million distribution from the U S.
Jorge Jose Garca: <unk> during this quarter.
Jorge Jose Garca: We do not anticipate the tax treatment of U S source dividends through the bank holding company to impact liquidity, our future capital actions.
Jorge Jose Garca: On a GAAP basis, we now expect the effective tax rate for the year to be in a range of 21% to 23%.
Jorge Jose Garca: This includes the impact of the $17 million in income tax expense related to the prior period distributions.
Jorge Jose Garca: Please turn to slide six.
Jorge Jose Garca: Yeah.
Jorge Jose Garca: Net interest margin increased by eight basis points.
Jorge Jose Garca: On a taxable equivalent basis, NIM was 338% an increase of 12 basis points.
Jorge Jose Garca: The increase was driven by higher loan yields and average balances across most lending categories as well as higher yields in our investment portfolio.
Jorge Jose Garca: Excluding the impact of the FDIC special assessment and their prior period tax matter, the effective tax rate would have been 25%. This adjusted effective tax rate in Q1 also reflects approximately $7 million in income tax expenses arising from a $50 million distribution from the U.S. sub completing during this quarter. We do not anticipate the tax treatment of U.S. sourced dividends to the bank holding company to impact liquidity or future capital actions.
Jorge Jose Garca: This was partially offset by higher interest expense on deposits due to increased average balance public deposits at <unk> and high costs online deposits at popular bank.
Jorge Jose Garca: Excluding Puerto Rico deposits consolidated customer deposit balances increased by roughly $240 million primarily in retail accounts.
Jorge Jose Garca: At the end of the first quarter, Puerto Rico public deposits were $18 billion down slightly compared to Q4 and at the upper end of our guidance range.
Jorge Jose Garca: On a gap basis, we now expect the effective tax rate for the year to be in a range of 21% to 23%. This includes the impact of the $17 million in income tax expense related to the prior period distribution. Please turn to slide 6.
For the rest of the 'twenty 'twenty four we expect public deposits will be in the range of 15% to $18 billion.
Jorge Jose Garca: Normal seasonality should result in public deposit balances trending higher and peaking in Q2, mostly related to tax receipts.
Jorge Jose Garca: Then the interest margin increased by 8 basis points. On a taxable equivalent basis, NIEM was 3.38%, an increase of 12 basis points. The increase was driven by higher loan yields and average balances across most lending categories, as well as higher yields in our investment portfolio. This was partially offset by higher interest expense on deposits due to an increased average balance of public deposits at BPPR and high-cost online deposits at Popular Bank. Excluding Puerto Rico deposits, consolidated customer deposit balances increased by roughly $240 million, primarily in retail accounts.
Jorge Jose Garca: Our interest rate sensitivity remains relatively neutral.
Jorge Jose Garca: Higher for longer rate environment should not have a significant impact on our NII forecast for 2024.
Jorge Jose Garca: Except to the extent that such an environment increases pressure on deposit pricing, particularly in our U S operations due to changes in client our competitor behavior.
Jorge Jose Garca: Please turn to slide seven.
Jorge Jose Garca: Deposit betas in the current tightening cycle are above the prior cycle, we have seen a total cumulative deposit beta of 35% to date driven by public deposits in Puerto Rico and online deposits in the U S. The.
Jorge Jose Garca: The rate of increase in deposit cost for the corporation continued to slow down in the quarter.
Jorge Jose Garca: Yes.
And maybe our total deposit costs increased by two basis points compared to an increase of 11 basis points in Q4 led by higher average balances of public deposits.
Jorge Jose Garca: At the end of the first quarter, Puerto Rico public deposits were $18 billion, down slightly compared to Q4 and at the upper end of our guidance range. For the rest of 2024, we expect public deposits to be in the range of $15 to $18 billion. As usual, normal seasonality should result in public deposit balances trending higher and peaking in Q2, mostly related to tax receipts. Our interest rate sensitivity remains relatively neutral.
Jorge Jose Garca: The cost of public deposits decreased by one basis point.
A couple of our bank deposit costs increased by 23 basis points compared to an increase of 33 basis points in Q4, driven by the positive gather primarily through our online channel.
Jorge Jose Garca: Please turn to slide eight.
Jorge Jose Garca: We continue to target a sustainable a 14% return on tangible common equity by the end of 2025.
Jorge Jose Garca: A higher for longer rate environment should not have a significant impact on our NII forecast for 2024, except to the extent that such an environment increases pressure on deposit pricing, particularly in our U.S. operations due to changes in client or competitor behavior. Please turn to slide 7.
Jorge Jose Garca: Regulatory capital levels remained strong our CET one ratio of 16, 4% increased by six basis points from Q4.
Jorge Jose Garca: Tangible book value per share at quarter end was $60 six.
Jorge Jose Garca: An increase of 32 per share from Q4.
Jorge Jose Garca: Our long term outlook on capital return has not changed over time, we expect our regulatory capital ratios to gravitate towards the levels of our mainland peers, plus a buffer driven by our geographic concentration in Puerto Rico.
Jorge Jose Garca: The positive data in the current tightening cycle are above the prior cycle. We have seen a total cumulative deposit beta of 35% to date driven by public deposits in Puerto Rico and online deposits in the U.S. The rate of increase in the deposit cost of the corporation continued to slow down in the quarter, and BVPR total deposit costs increased by two basis points compared to an increase of 11 basis points in Q4, led by higher average balances of public deposits.
We continue working towards announcing new capital actions in the second half of 2024.
Jorge Jose Garca: The size and nature of any future capital actions will depend on the outlook of the interest rate environment, including the impact on our TCE ratio.
Jorge Jose Garca: With that I'll turn the call over to Leo.
Leo: Thank you and good morning.
Leo: Critics related metrics were stable from the fourth quarter.
Jorge Jose Garca: The cost of public deposits decreased by one basis. At Popular Bank, deposit costs increased by 23 basis points compared to an increase of 33 basis points in Q4, during the process gathered primarily through our online platform.
Leo: Our strengths remain consistent with recent performance.
Leo: The corporation's mortgage and commercial portfolios.
Leo: Continue to reflect credit metrics significantly below pre pandemic levels.
Leo: Credit quality metrics continue to normalize.
Leo: Puerto Rico's unsecured personal loans credit cards, and auto and refinanced loans.
Jorge Jose Garca: Please turn to slide 8, because we need to target a sustainable 14% return on tangible common equity by the end of 2025. Regulatory capital levels remain strong; our CET1 ratio of 16.4% increased by 6 basis points from Q4. Tangible book value per share at quarter end was $60.06, an increase of $0.32 per share from Q4. Our long-term outlook on capital return has not changed. Over time, we expect our regulatory capital ratios to gravitate towards the levels of our mainland peers, plus a buffer driven by our geographic concentration in Puerto Rico.
Leo: We continue to closely monitor changes in the microcosm economic environment Im on borrower performance.
Leo: Given higher rates.
And inflationary pressure I have made changes to underwriting criteria.
Leo: <unk> exposure to higher risk segments.
We believe there will be improvements over recent years and risk management practices and the risk profile of the corporation loan portfolios was it just for Golar to continue to operate successfully under the current environment.
Leo: Yes.
Leo: Turning to slide number nine.
Leo: Nonperforming assets and nonperforming loans.
Leo: Driven by the Puerto Rico region.
Leo: In Puerto Rico decreased by $30 million.
Leo: Reflecting improvements in most loan categories.
Leo: Npls in the U S increased by $27 million related to higher mortgage npls by $70 million.
Leo: Targeted by a single loan and higher commercial Npls.
Leo: Indonesia.
Leo: Inflows of Npls increased by $8 million.
Jorge Jose Garca: We continue working towards announcing new capital actions in the second half of 2020. The size and nature of any future capital actions will depend on the outlook for the interest rate environment, including the impact on our TCE rate.
Leo: Driven by the previously mentioned increasing npls in the U S mortgage and commercial portfolio.
Leo: Puerto Rico total inflows decreased by $19 million.
Leo: Driven by an $18 million relationship enter.
Leo: Entering the fourth quarter of 2023.
Leo: The ratio of Npls to total loans held in portfolio remained flat at 1%.
Jorge Jose Garca: With that, I turn the call over to Lidio.
Leo: Turning to slide number 10.
Leo: Net charge offs amounted to $62 million.
Lidio V. Soriano: Thank you, Jorge, and good morning. The required symmetrics were stable from the fourth quarter. Our strengths remain consistent with recent performance. The corporation's mortgage and commercial portfolios continue to reflect credit metrics significantly below pre-pandemic levels, while credit quality metrics continue to normalize for Puerto Rico's unsecured personal loans, credit cards, and auto and lease finance loans. We continue to closely monitor changes in the microeconomic environment and borrower performance. Given higher rates, higher interest rates, and inflationary pressure, I have made changes to underwriting criteria to decrease exposure to high-risk sectors. We believe that the improvements over recent years in risk management practice and the risk profile of the corporation's portfolios positions it to continue to operate successfully under the current environment.
Leo: Or annualized 71 basis points powerless as loans held in portfolio.
Leo: Compared to $57 million.
Leo: 66 basis points in the prior quarter.
Leo: The increase in net charge offs was driven by a $5 million charge off.
Leo: <unk> to a previously reserved.
Leo: Excluding this.
Leo: <unk> were flat.
Leo: In Puerto Rico, net charge offs increased by $5 million.
Leo: Mainly driven by higher commercial and consumer net charge offs the charge off in the U S were flat quarter over quarter.
Leo: We continue to expect net charge offs for the full year to be between 65.
Leo: 285 basis points due to the ongoing credit normalization and general economic environment.
Leo: Please turn to slide number 11.
Leo: The allowance for credit losses increased by $10 million.
Leo: $740 million.
Leo: In Puerto Rico, the ACL increased by $4 million.
Leo: Driven by the consumer portfolio.
Leo: Due to changes in credit quality in.
Leo: In the U S.
Leo: ACL increased by $6 million.
Leo: By higher commercial reserve due to ratings migration.
Leo: The corporation ratio ACL to loans held in portfolio remained flat at two 1%.
Leo: While the ratio of ACL to Npls stood at 209% comp.
Lidio V. Soriano: Turning to slide number nine, non-performing assets and non-performing loans decreased slightly, driven by the Puerto Rico region. MPOs in Puerto Rico decreased by 30 million, reflecting improvements in most loan categories. NPLs in the U.S. increased by $27 million, related to higher mortgage NPLs by $17 million, impacted by a single loan, and higher commercial NPLs by $10 million. Influence of NPLs increased by 8 million, driven by the previously mentioned increasing NPLs in the U.S. mortgage and commercial portfolio.
Leo: <unk> grew.
Leo: Two 4% in the previous quarter.
Leo: The provision for credit losses was $72 million compared to 75 million per quarter.
Leo: Puerto Rico, the provision was $61 million.
Leo: Compared to $67 million one in the U S. The provision of $11 million versus eight.
Leo: To summarize <unk>.
Leo: Quality remains stable.
Leo: During the first quarter.
Leo: <unk> with recent performance.
Leo: We are attentive to the evolving environment.
Leo: Average I think.
Leo: Performance of our loan book.
Leo: With that I would like to turn the call over to Ignacio for his concluding remarks.
Ignacio Alvarez: Thank you Lydia and Jorge for your updates.
Ignacio Alvarez: I'll start off 2024, with a solid first quarter building on the positive momentum seen in 2023.
Ignacio Alvarez: Our results were driven by strong net interest income and expanding net interest margin stable credit quality and continued customer growth.
Lidio V. Soriano: In Puerto Rico, total inflows decreased by 19 million, driven by an 18 million relationship that entered NPL in the fourth quarter of 2022. The ratio of NPL to total loans held in the portfolio remains flat at 1%.
Strength of our franchise is once again reflected in the increase experienced during the quarter and retail demand deposits in Puerto Rico.
Ignacio Alvarez: Last week, we launched our new institutional marketing campaign in Puerto Rico titled same with the remote follow your rhythm.
Lidio V. Soriano: Turning to slide number 10, net charge-off amounted to $62 million, or Analyze 71 Basis Points of Abolition Loans Helping Portfolio, compared to 57 million, for a 66 basis point in the prior quarter. The increasing net charge-off was driven by a $5 million charge-off related to a previously reserved loan. Excluding this, the Church of World Flag.
Ignacio Alvarez: This campaign includes a custom composed audio brand and focuses on our unmatched omnichannel offering highlighting our wide range of financial services through digital and traditional channels.
As well as our convenience and accessibility.
Ignacio Alvarez: We have also made great progress in our transformation effort and some of those initiatives already producing encouraging results.
Ignacio Alvarez: We will continue these efforts to ensure our organization success for many years to come.
Lidio V. Soriano: In Puerto Rico, natural job increase by $5 million. Mainly driven by higher commercial and consumer net charge-off, the charge-off in the U.S. were flat for over a quarter. We continue to expect net charge-off for the full year to be between 65 to 85 basis points due to the ongoing credit normalization and general economic environment. Please turn to slide number 11.
Ignacio Alvarez: This entails meeting the rapidly changing needs of our customers.
Ignacio Alvarez: Providing our colleagues at workplace, where they can thrive promoting progress in the communities we serve.
Ignacio Alvarez: And generating sustainable value for our shareholders.
Ignacio Alvarez: I'm optimistic about our prospects for the remainder of 2024.
Ignacio Alvarez: Economic trends in Puerto Rico continued to be positive and we are well positioned to participate in the economic activity that is expected to be generated in the coming years.
Lidio V. Soriano: The Allowance Procurement Losses increased by $10 million. In Puerto Rico, the ACL increased by 4 million due to the Consumer Portfolio due to changes in quality. In the U.S., the ACL increased by 6 million due to the Higher Commercial Law Reserve due to race and migration. The corporation ratio of ACL to loans held in the portfolio remains flat at 2.1%, while the ratio of ACL to MPL stood at 209%, compared to 2.4% in
Ignacio Alvarez: I want to thank our colleagues for their continued dedication and commitment to serve our customers and contribute to popular success.
Speaker Change: We are now ready to answer your questions.
Speaker Change: Yes.
Speaker Change: Thank you.
Please press star followed by the number one if you'd like to ask a question. So all your devices, Amit likely Renishaw panties.
Speaker Change: Yeah.
Speaker Change: Our first question today comes from Gerard Cassidy of RBC capital markets. Your line is open. Please go ahead.
Gerard Sean Cassidy: Thank you Heng Shun Jorge.
Gerard Sean Cassidy: Good morning, good morning Gerard.
Lidio V. Soriano: The provision for query losses was $72 million compared to $75 million in the prior quarter; in Puerto Rico, the Prohibition cost 161 million. The total number of people who were murdered in the U.S. was 67 million, while in the U.S., the proportion was 11 million versus 8 million.
Gerard Sean Cassidy: Can you guys give us an update on the timeline on deciding about a share repurchase program. Obviously, you are very well capitalized the outlook. This year is rather strong better than many of your peers in terms of your.
Lidio V. Soriano: Summary. Credit Quality Remains. Unknown Executive, Javier Ferrer, Ignacio Alvarez, Popular Inc. We are attentive to the evolving environment but remain encouraged by the performance of our lawnmowers. With that, I would like to turn the call over to Ignacio for his concluding remarks. Thank you, Lidio and Jorge.
Economic growth in net income growth.
Gerard Sean Cassidy: If you could just update us what you're thinking in terms of possibly announcing a share buyback program in the next six to 12 months.
Gerard Sean Cassidy: I think we're going to reiterate what we said we're working hard we anticipate that we will be making an announcement about our clients and that'll be in the second half of the year.
Ignacio Alvarez: Thank you, Lidio, and Jorge for your update. Popular started off 2024 with a solid first quarter, building on the positive momentum seen in 2023. Our results were driven by strong net interest income and an expanding net interest margin, stable credit quality, and continued customer growth. The strength of our franchise is once again reflected in the increased experience during the quarter in retail demand deposits in Puerto Rico. Last week, we launched our new institutional marketing campaign in Puerto Rico titled Seguimos Terrimo, or We Follow Your Rhythm. This campaign includes a custom-made audio brand and focuses on our unmatched omni-channel offering, highlighting our wide range of financial services through digital and traditional channels as well as our convenience and accessibility.
Speaker Change: I wouldn't want to pinpoint it too much in terms of specific months or whatnot, but.
Speaker Change: Rest assured we know people want to hear from us and we're working hard to make some kind of announcement.
Speaker Change: Alright, and I guess as a follow up just to that question.
Speaker Change: Because your capital levels I know you haven't given a specific CET one ratio that you want to manage to.
Speaker Change: Assuming you are comfortable to say that your current levels or are more of a sufficient.
Speaker Change: Would you be.
Speaker Change: Willing or would you consider a program that would actually give back more capital to shareholders in dividends and buybacks that would exceed the current period of earnings.
Operator: We have also made great progress in our transformation efforts, and some of those initiatives are already producing encouraging results. We will continue these efforts to ensure our organization's success for many years to come. This entails meeting the rapidly changing needs of our customers, providing our colleagues with a workplace where they can thrive, promoting progress in the communities we serve, and generating sustainable value for our shareholders. I am optimistic about our prospects for the remainder of 2024.
Speaker Change: So that the combined ratio if you will would exceed 100%.
Speaker Change: Yes.
Jorge Jose Garca: Gerard this is Jorge.
Jorge Jose Garca: I think at this stage as we said in the prepared remarks.
Jorge Jose Garca: The level of of any new capital actions that we announced will depend on a lot of factors I think nicely said, we know this is important to our shareholders.
Jorge Jose Garca: We have that in mind.
Speaker Change: I guess I'd say lets get started with an announcement sometime in the second half and then we'll see where we go from there, but it's important that we set the stage.
Operator: Economic trends in Puerto Rico continue to be positive, and we are well positioned to participate in the economic activity that is expected to be generated in the coming years. I want to thank our colleagues for their continued dedication and commitment to serve our customers and contribute to public success. We're now ready to answer your questions.
Speaker Change: We would expect.
Speaker Change: Capital actions to be gradual over time this is not going to be a step function or do we see.
Speaker Change: A huge decrease or something like that.
Speaker Change: <unk> be overtime.
Got it and then just as a final question.
Operator: Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. Our first question today comes from Gerard Cassidy of RBC Capital Markets. Your line is open, please go ahead.
Speaker Change: When you guys look at the next two to three years, what's the optimal mix of money market and investment securities as a percentage of assets relative to loans do you are you comfortable keeping in the 45 to 50.
Gerard Sean Cassidy: Thank you, Ignacio and Jorge.
Speaker Change: A cent range or would it overtime, maybe gradually come down further.
Unknown Executive: Good morning.
Gerard Sean Cassidy: Can you guys give us an update on the timeline for deciding about a share repurchase program? Obviously, you're very well capitalized, and the outlook for this year is rather strong, better than many of your peers in terms of your economic growth and net income growth. And so, could you just update us on what you're thinking in terms of possibly announcing a share buyback program in the next six to 12 months?
Speaker Change: Yes, I'll, let jorge add to that but I think it's going to depend on the level of public funds right. So to the extent of the funds go down we would expect.
Jorge Jose Garca: Investment Securities go down.
Jorge Jose Garca: You asked me I always prefer.
Jorge Jose Garca: More loans to investment securities, but I think it's going to depend on the it's going to be mostly dependent on the level of public funds as they go down you can expect the percentage of investment securities to go down also.
Ignacio Alvarez: I think we've got to reiterate what we said. We're working hard. We anticipate that we will be making an announcement about our plans, and that'll be in the second half of the year. I really wouldn't want to pinpoint it too much, you know, in terms of specific months or whatnot. But rest assured, we know people want to hear from us, and we're working hard to make some kind of announcement.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question today comes from Tim <unk> of Wells Fargo.
Tim: Please go ahead your line is open.
Tim: Yeah.
Tim: Hey, good morning.
Tim: Good morning America.
Looking at just the <unk>.
Speaker Change: Performance in the first quarter and then your unchanged guidance for the year.
Gerard Sean Cassidy: I guess as a follow-up just to that question, because your capital levels, I know you haven't given us a specific CET1 ratio that you want to manage to, but assuming you're comfortable to say that your current levels are more than sufficient, would you be willing or would you consider a program that would actually give back more capital to shareholders in dividends and buybacks that would exceed a current period of earnings? So that the combined ratio, if you will, would exceed 100.
Speaker Change: Annualized Inc. First quarter performance gets you to the upper end of the guidance.
Speaker Change: You get a seasonally strong quarter for deposits and <unk> loan growth is going to.
Speaker Change: Pick up kind of versus where first quarter came in is it safe to say that you are kind of no.
Speaker Change: Targeting closer to the upper end of the guidance I guess, what would need to take place for you to come in closer to the lower under your guidance at this point.
Jorge Jose Garca: Gerard, this is Jorge. I think at this stage, as we said in the prepared remarks, the level of any new capital actions that we announce will depend on a lot of factors. As Ignacio said, we know this is important to our shareholders. We have that in mind. And, you know, I guess I'd say let's get started with an announcement sometime in the second half, and then we'll see where we go from there.
Okay.
Speaker Change: I will reiterate we reaffirmed the guidance, 9% to 13%, we give a range for a reason Timur.
Speaker Change: Of the risk to the guidance I think we've talked about it a little bit on the prepared remarks.
Speaker Change: I think the deposit.
Speaker Change: Competitive deposit activity, particularly in our U S operations, if a higher for longer environment or another bank failure creates a lot of pressure for liquidity and competition. Those are the kinds of things that that we would have would impact that.
Jorge Jose Garca: But it's important that we set the stage, you know; we would expect capital actions to be gradual over time. This is not going to be a step function, or we see a huge decrease or something like that, you know; it will be gradual over time.
Speaker Change: That guidance.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay, and then I guess speaking to deposits more specifically with public funds being at $18 billion of <unk> being seasonally high.
Gerard Sean Cassidy: Got it. And then just as a final question, when you guys look at, you know, the next two to three years, what's the optimal mix of money market and investment securities as a percentage of assets relative to loans? Do you feel comfortable keeping it in the 45 to 50% range? Or would it, over time, maybe gradually come down, for, and I'll let Jorge add.
Speaker Change: Are those expected to go higher and I guess in that same line of questioning maybe the competition for those deposits is a little bit more on the island are you anticipating having to pay up to get your fair share of kind of that seasonal deposit growth in the second quarter.
Jorge Jose Garca: Yeah, I'll let Jorge add to that, but I think it's going to depend on the level of public funds, right? So, to the extent that public funds go down, we would expect that investment securities go down as well. If you ask me, I always prefer more loans to investment securities, but I think it's going to depend on the level of public funds. If they go down, you can expect a percentage of investment securities to go down as well. Great, thank you.
Speaker Change: No.
Speaker Change: No the public deposits generally have a formula that we abide by so.
Speaker Change: It's really going to depend on at least noted before it's a formula based on short term rates. So that's not going to depend on the competitive pressures.
Speaker Change: Banks in Puerto Rico in terms of the nonpublic deposits, we continue to have very healthy.
Speaker Change: Deposit ratios, perhaps too healthy so I don't see that competitive environment.
Operator: Our next question today comes from Timur Braziler of Wells Fargo. Please go ahead; your line is open.
Speaker Change: Changing in the short run.
Speaker Change: Yeah.
Okay, and then just last for me looking at the unsecured consumer credit and maybe some of these other consumer category.
Timur Braziler: Looking at just the NII performance in the first quarter and then your unchanged guidance for the year or annualizing the first quarter performance gets you to the upper end of the guidance. You get, you know, a seasonally strong quarter for deposits, and 2Q loan growth is going to pick up kind of versus where the first quarter came in. Is it safe to say that you're kind of targeting closer to the upper end of the guidance? I guess what would need to take place for you to come in closer to the lower end of your guidance at this point?
Speaker Change: We are hearing in the U S from some of the consumer companies adjust the glut of activity. During the pandemic now is seasoning youre seeing kind of a commensurate increase in delinquency rates with the expectations for that to actually peak and then move lower throughout the course of the year should we expect a similar dynamic in Florida.
Speaker Change: Or maybe as you get through some of the excess capacity that was took on during COVID-19 as that rolls off could we actually see some of these consumer.
Jorge Jose Garca: I'll reiterate, you know, we reaffirmed the guidance, 9 to 13 percent. We give a range for a reason, Timur. In terms of the risk to the guidance, I think we talked about it a little bit in the prepared remarks. I think the deposit, competitive deposit activity, particularly in our U.S. operations, if they hire for longer or another bank failure creates a lot of pressure for liquidity.
Delinquency rates are declawed.
Speaker Change: <unk>.
Speaker Change: Some of the underwriting criteria kind of kicks in.
Speaker Change: I think a couple things.
Speaker Change: As we mentioned in the <unk>.
Speaker Change: During the first quarter, we saw.
Speaker Change: Stability of our action are decreasing some of the delinquencies on the consumer portfolios.
Speaker Change: Sure.
Speaker Change: Leave maybe we're close to reaching it.
Speaker Change: In addition to that as <unk>.
Speaker Change: Mentioned, we made significant changes in the fourth quarter to some of our underwriting criteria.
Speaker Change: Reinsured needed or short duration.
Timur Braziler: Okay, and then I guess just speaking to deposits more specifically with public funds being at 18 billion and 1Q, and 2Q being seasonally high. Are those expected to go higher? And in that same line of questioning, maybe the competition for those deposits is a little bit more on the island. Are you anticipating having to pay up to get your fair share of some of that seasonal deposit growth in the second quarter?
Speaker Change: Portfolios.
Speaker Change: In fact in the short term so we expect that we will see a peak.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Brian <unk> from.
Brian: Please go ahead your line is open.
Brian: Hey, good morning, everybody.
Brian: Had a question around the multifamily U S portfolio of $1 4 billion, which is 4% of the total portfolio. So it's not it's not.
Unknown Executive: [inaudible]
Timur Braziler: Okay, and then just last for me, looking at unsecured consumer credit and maybe some of these other consumer categories, we're hearing in the U.S. from some of the consumer companies that just the glut of activity during the pandemic is now seasoning, and you're seeing kind of a commensurate increase in delinquency rates with the expectations for that to actually peak and then move lower throughout the course of the year. Should we expect a similar dynamic in Puerto Rico, or maybe as you get through some of the excess capacity that was taken on during COVID as that rolls off, could we actually see some of these consumer delinquency rates decline as some of the underwriting criteria kind of kicks in? Unknown Executive, Javier Ferrer, Ignacio Alvarez, Popular Inc.
Brian: Huge but I didn't understand the comment on slide 22 that says no exposure to rent control buildings.
Brian: But then the next bill the next bullet says rent stabilized units represent less than 40% of the total units in the portfolio.
Speaker Change: Can you explain the rent control piece of the multifamily portfolio and then obviously multifamily is something folks are thinking about the classifieds are still low for you guys, but they did increase linked quarter just wanted to get a better understanding of the book.
Speaker Change: I've been with the multifamily in New York there are different levels, obviously, there are market.
Unknown Executive: I think a couple of things. As we mentioned in the remarks during the first quarter, we saw an Unknown Executive, Javier Ferrer, Ignacio Alvarez, Carlos Vquez, Timur Braziler, and Javier
Speaker Change: The apartment rents.
Speaker Change: Britain stabilize.
Speaker Change: Requirements, which allow for certain increases in rent provided by on a yearly basis.
Speaker Change: The.
Speaker Change: The government on their rental joined <unk>.
Rents.
Operator: And the next question comes from Brett Rabatin from Hoftie Group. Please go ahead; your line is open.
<unk> fix for a period of time, so we're saying that we have.
Speaker Change: No exposure to rent control requirements, we have exposure to rent stabilized apartments.
Speaker Change: Okay, and then do you just generally what do you expect.
Brett D. Rabatin: Hey, good morning. Everybody had a question around the multifamily US portfolio of 1.4 billion, which is, you know, I guess 4% of the total portfolio. So it's not, it's not huge, but I didn't understand the comment on slide 22.
Speaker Change: From that portfolio from here as you look at it in terms of where migration might occur classified criticized from that book.
Speaker Change: I don't think we provided that level of detail.
Or the level.
Speaker Change: Guidance in any of our portfolio, what I will say that as reporting.
Unknown Executive: That says no exposure to rent control buildings. But then the next bill, the next bullet says rent stabilized units represent less than 40% of the total units in the portfolio. Can you explain the rent control piece of the multifamily portfolio? And then, you know, obviously, multifamily is something folks are thinking about. The class fives are still low for you guys, but they did increase by one quarter. Just wanted to get a better understanding of the book.
Speaker Change: I think you referenced page 22.
Speaker Change: The biggest risk when you look at a multi families.
Speaker Change: The level of rent control risks that mutation.
Speaker Change: And then the rest of repricing of the portfolio going forward as we mentioned slide we only have <unk>.
Our $38 million of multifamily loans repricing in 2024.
Speaker Change: I would have more than 50% realized unit apartment. So we feel comfortable I think is reflected in the ratings of our portfolio.
Okay.
Unknown Executive: I think within multifamily in New York, there are different levels. Obviously, there are market-free apartments. There are rent-stabilized apartments, which allow for certain increases in rent provided on a yearly basis, as agreed by the state government. And then there are rent-controlled, in which the rents basically are fixed for a period of time. So we're saying that we have no exposure to rent-controlled apartments. We have exposure to rent-stabil
Speaker Change: Thanks, Danielle and then.
Speaker Change: Wanted to ask back on capital when I look.
Speaker Change: Slide I think it's.
Speaker Change: The investment portfolio Slide 19, when I go back to the 10-K and look at the fair value marks on the loans on the securities portfolio. If you look at the duration on slide 19, it's two years.
Brett D. Rabatin: Okay, and then would you just generally do what you expect? From that portfolio here, as you look at it in terms of where migration might occur, classified, and criticized in that book.
Speaker Change: Then if you look at the 10-K, there was a pretty good slug that's.
Speaker Change: Call. It a barbell strategy can you guys talk about any willingness to maybe restructure of a longer piece of the securities portfolio that at year end was about $1 billion of the $1 billion three in total I OCI.
Unknown Executive: I don't think we should provide that level of detail or that level of... and many others. So, let's start with the first slide.
Unknown Executive: What I will say is that as we put in page, I think you referenced page 22, the biggest risk when you look at multifamily, the level of rent control, rent stabilization, and then the risk of repricing of the portfolio going forward. As we mentioned in that slide, we only have about $38 million of multifamily loans repricing that have more than 50% stabilized units in their apartments. So we feel comfortable, and I think it's reflected in the ratings of our portfolio.
Speaker Change: Brian One thing I think in the 10-K, the MBS portfolio structure based on an original maturities. It doesn't have a prepayment factor, which you would see in the maturity profile that you have on slide 19, So I think thats a difference between the way we report for SEC.
Speaker Change: Refinements versus versus this slide.
Brett D. Rabatin: Thanks, Lidio. And then I wanted to ask you back on capital.
Speaker Change: Alright in terms of the maturity curve I would look at we look at slide 19.
Brett D. Rabatin: When I look at a slide, I think it's The investment portfolio. It's slide 19. When I go back to the 10K and look at the fair value marks on the securities portfolio, if you look at the duration on slide 19, it's two years. But then, if you look at the 10K, there's a pretty good slug that's, I call it, a barbell strategy. Can you guys talk about any willingness to maybe restructure the longer piece of the securities portfolio that at year end was about a billion of the billion three in total AOCI?
Speaker Change: When you see particularly on the treasuries you see a ladder strategy, where we're seeing.
Speaker Change: Quarterly maturities of somewhere around $900 million when you add prepayment maturities on MBS is around $150 million a quarter, you really are repricing about $1 billion.
Unknown Executive: Unknown Speaker 1. I think in the 10k, the MBF portfolio is structured based on original maturity. It doesn't have a prepayment factor, which you would see in the maturity profile that you have on Slide 19. So I think that's a difference in the way we report for SEC. Requirements versus this slide. So in terms of the maturity curve, I would look at slide 19. When you look, particularly on the treasuries, you see a ladder strategy where we're seeing quarterly maturities of somewhere around $900 million. When you add prepayment maturities on MBSs of around $150 million a quarter, you really are repricing about $1 billion a quarter.
Speaker Change: A quarter, we expect about 33% of our unrealized loss at the end of this quarter to have been accreted back to tangible book value by the end of 2025, assuming no changes in the rate scenario of course.
Speaker Change: We believe that given our profile in the amount of the unrealized loss that just going to naturally.
Speaker Change: Accrete back to tangible book value of trade, where we realized a loss doesn't make sense.
Speaker Change: Essentially any trade with a similar duration has no economic value to our shareholders and we're just trading capital a big chunk of capital for EPS.
Unknown Executive: We expect about 33% of our unrealized loss at the end of this quarter to have been accreted back to tangible book value by the end of 2025, assuming no changes in the rate scenario, of course. So we believe that given our profile and the amount of the unrealized loss that's just going to naturally accrete back to tangible book value, a trade where we realize a loss doesn't make sense. Essentially, any trade with a similar duration has no economic value to our shareholders, and we're just trading capital, a big chunk of capital for EPS. And at this stage, we don't believe that that's a good trade.
Speaker Change: And at this stage, we don't believe that that's a good trade.
Speaker Change: Okay, that's really helpful and if I could sneak in one last one on the unchanged NII guidance.
Speaker Change: And relative to the loan growth guidance is it fair to assume the balance sheet is very flat for the year.
Speaker Change: Yeah.
Speaker Change: I mean, what would drive growth in the balance sheet would be growth in deposits.
Speaker Change: We would probably.
Speaker Change: Given the amount of liquidity and security so.
Speaker Change: I would I would say that when you look at the NII guidance. It is really driven by the repricing of those investment portfolios that are maturing every quarter.
Brett D. Rabatin: Okay, that's really helpful. And if I could sneak in one last one on the unchanged NII guidance, and relative to the loan growth guidance, is it fair to assume the balance sheet is very flat for the year?
Unknown Executive: I mean, what would drive growth in the balance sheet would be growth in deposits, as we would probably, you know, given the amount of liquidity and security, so... I would say that when you look at the NII guidance, it is really driven by the repricing of those investment portfolios that are maturing every quarter. You have the repricing of loans in a higher rate environment. I mean, just to run in place, we have to generate a lot of new loans every quarter, so there is a lift from that.
Speaker Change: You have the repricing of loans and a higher rate environment.
Speaker Change: Just to run in place.
Speaker Change: We have to generate a lot of new loans every every quarter. So that there is a lift from that.
Speaker Change: If public deposits come down given our range, where we are at the top end of the range that.
Speaker Change: We will reduce the balance sheet so.
Unknown Executive: If public deposits come down, given our range, where we're at the top end of the range, that will reduce the balance sheet. We don't give guidance in terms of classes on where we think the balance sheet is going to be, but there are a lot of levers there that could impact that projection.
I mean, I don't know, we don't give guidance in terms of glasses. When we think the balance sheet is going to be but there are a lot of levers there that could impact that production.
Speaker Change: Okay.
Speaker Change: That's great. Thanks for all the color.
Speaker Change: Okay.
Brett D. Rabatin: Okay.
Speaker Change: Our next question comes from Ben <unk> of Citi.
Unknown Executive: That's great; thanks for the color.
Operator: Our next question comes from Ben Gerlinger of City. Your line is open, please go ahead.
Ben: Your line is open. Please go ahead.
Unknown Executive: Hey, good morning. Good morning.
Ben: Good morning.
Ben: Yeah.
Ben: Good morning.
Benjamin Tyson Gerlinger: Just curious, in terms of the charge-off guidance, I mean, the 65 to 85 basis points is pretty wide range. I understand at the beginning of the year, there was quite a bit of the range of outcomes was pretty wide. And it seems like not only things are slowing down, they're showing a clear plateauing effect. Is it fair to think that the 85 is a bit draconian at this level?
Ben: I'm just curious in terms of the charge off guidance I mean that 65% to 85 basis points is a pretty wide range I guess at the beginning of the year.
Ben: Quite a bit.
Ben: The range of outcomes is pretty wide.
Ben: And it seems like not only in things are slowing down their search arent clear plateauing effect is it fair to think about the $85.
Ben: Draconian at this level.
Unknown Executive: We are providing guidance, and we updated the guidance to 65 to 85 basis points. I think you're right in the sense that as we move along the year, there can be more confidence in terms of the guidance. But as of today, we're sticking with 65 to 85 basis points.
Ben:
Speaker Change: We are providing the guidance.
And we updated the guidance.
Speaker Change: 35 basis points, I think youre right in the sense that as we move along the year, they're going to be more comprehensive in terms of the guidance for that as of today, we're sticking with.
5% to 85 basis.
Benjamin Tyson Gerlinger: Gotcha. And then from an expense perspective, I know you gave the range for this year. When you think about next year, even 2026, are there any efficiency opportunities that you might see, not necessarily in 2024? But just thinking high level, I'm just trying to look. I know you don't want to give guidance for 25 or 26 at this point. But you think from an operational perspective, is there any way or any opportunities to kind of just tighten up the expense space? I think you're doing a great job now. I'm just kind of curious about how you get even better from here.
Speaker Change: Gotcha, and then from an expense perspective, I know you gave the range for this year.
Speaker Change: Or do you think about next year in 2026 are there any efficiency opportunities that you might see that in this early in 2020 core, but just thinking high level I'm just trying to I know you don't want to give guidance for 25 or 26 at this point, but you are seeing from an operational perspective is there any way or any opportunities to kind of tighten up the expense.
Youre doing a great job now and just kind of curious.
Speaker Change: You get even better from here.
Speaker Change: I mean, I think as you said.
Speaker Change: We don't want to give guidance for 'twenty five.
Unknown Executive: I mean, I think, as you said, we don't want to give guidance for 25, certainly not 26, but we're doing a lot of efforts in the transformation that help us to go towards that 2020-25 ROTC guidance. Most of that effort, we believe, is top-line driven, so we'll be creating operational efficiency. And while we are always focused on managing costs and trying to make sure we... slow down the acceleration of expenses, I would not expect a driver that would decrease our expenses significantly. I would see more of an opportunity to create more efficiency and operational efficiency from higher revenues and slowing down the growth of expenses.
Speaker Change: Fair enough 26, but we.
Speaker Change: We're doing a lot of effort and the transformation that that.
Speaker Change: That help us to go towards that.
Speaker Change: 2000, 2025, ROTC guidance most of that effort. We believe is top line driven so we will be creating operational efficiency.
Speaker Change: And while we always are focused on managing costs and trying to make sure we.
Speaker Change: Slowed down the acceleration of expenses.
Speaker Change: I would not expect a a driver that would decrease our expense base significantly I would see more of an opportunity to create more efficiency operational efficiency from higher revenues and slowing down the growth of expenses.
Benjamin Tyson Gerlinger: Gotcha. That's a helpful call. I appreciate it.
Speaker Change: Gotcha, that's helpful color I appreciate it.
Operator: The next question comes from Gerard Shaw of Barclays. Your line is open.
Speaker Change: The next question comes from Jared Shaw of Barclays.
Jared Shaw: Your line is open.
Gerard Sean Cassidy: Maybe looking at the loan growth, you know, in light of the weaker end-of-period balances this quarter from some of those payoffs, what gives you confidence in the pipeline here? Do you feel, you know, just that we should see some CNI and CRE growth accelerate to keep that range stable here?
Jared Shaw: Hey, good morning.
Jared Shaw: Yes.
Jared Shaw: And maybe looking at the loan growth in light of the weaker end of period balances this quarter from some of those payoffs.
What gives you confidence in the in the pipeline here or do you feel.
Speaker Change: Yes, I would just add that.
We should see some C&I and CRE growth.
Speaker Change: Accelerate to keep that flat range stable here.
Ignacio Alvarez: Well, this is Ignacio. In terms of Puerto Rico, I mean, we're still, you know, optimistic about the economic conditions, which, after all, that's what's going to end up in loan growth. So, the economy seems to be going strong. I mean, we're seeing a lot of interest in clients and different deals. We're seeing investors asking around. So, we don't, you know, we don't give a number on the pipeline, but in general, the environment is strong.
Speaker Change: Well this is ignacio terms in Puerto Rico.
Ignacio Alvarez: We're still.
Ignacio Alvarez: Optimistic about the economic conditions, which after all that's what's that's what.
Ignacio Alvarez: What's going to.
Ignacio Alvarez: Okay.
Ignacio Alvarez: And up in loan growth so.
Ignacio Alvarez: The economy seems seems growing strong I mean, we're seeing a lot of interest from clients in different deals. We're seeing investors ask you around so we don't.
Ignacio Alvarez: Give a number on the pipeline, but in general the environment is strong. So I would expect that commercial loan growth will pick up I would expect construction will pick up.
Unknown Executive: So, I would expect, you know, that commercial loan growth will pick up. I would expect construction will pick up. There's a number of construction projects that we've signed up but haven't really dispersed any funds. Auto remains strong, and I would consider that to remain strong. So, I think in Puerto Rico, you're going to see. Unknown Executive, Javier Ferrer, Ignacio Alvarez, Paul Cardillo, Lidio Soriano, Broderick Preston, Carlos Vazquez, Jorge Garca, Benjamin Gerlinger, Carlos Vazquez, Thomas Leddy, Ignacio Alvarez, Ignacio Alvarez, Timur Braziler, Javier Ferrer, Ignacio Alvarez, Ignacio Alvarez, Carlos Vazquez, Jorge Garca, Benjamin Gerlinger, Carlos Vazquez, Javier Ferrer, Ignacio Alvarez, [inaudible] to maintain the guidance of the non-growth.
Ignacio Alvarez: There are a number of construction projects that we've signed up but haven't really disbursed any funds auto remains strong.
Ignacio Alvarez: I would consider that will remain strong so I think in particular youre going to see.
I think commercial will go up but I think auto will remain strong we are building up our mortgage on our strategy of holding mortgages portfolio that should be relatively steady.
Ignacio Alvarez: In the U S.
I think we're expecting the construction loans to go up.
Ignacio Alvarez: And the New York area.
Ignacio Alvarez: And our popular Association banking subsidiary Ross, We're also expecting growth there.
As you know in Florida. After there was that horrible asking of the condominium.
Ignacio Alvarez: Passed a number of laws and regulations that require that kind of means to certain appraisals assessment of their destruction integrity of the units and I think there is a deadline coming up in February 25, So we expect to see a lot of activity there.
Ignacio Alvarez: Hopefully, we'll be able to pick up some more commercial growth, but in generally in Puerto Rico.
Ignacio Alvarez: The economic environment that gives us the confidence.
Ignacio Alvarez: To maintain the guidance on loan growth.
Gerard Sean Cassidy: Okay, great. That's a good color. Thanks.
Speaker Change: Okay, great. That's good color, Thanks, and then.
Unknown Executive: And then, you know, looking at deposits, it really feels like you have found a stable level here for DDAs as a percentage of total deposits. Should we expect that DDAs will keep pace with growth in overall deposits from here? Or could there still be some incremental diminishment? That depends a lot on the
Speaker Change: Looking at deposits.
Speaker Change: It really feels like you found a stable level here on DDA as a percentage of total deposits.
Speaker Change: Should we expect that.
Speaker Change: <unk> keep track.
Speaker Change: Track growth in the overall deposits from here or could there still be some incremental diminishment.
Unknown Executive: Well, you know, that depends a lot on the, you know, the industry environment. We did, we did get the benefit of this being the tax season. So there are tax refunds, and that goes into people's users goes into people's DBA accounts. We'll have to see the consumers, the higher end consumers, and the commercial clients are still looking for alternatives to regular demand deposits, so we can expect that trend to continue as interest rates remain high.
Speaker Change: So that depends a lot on the.
Speaker Change: Interest rate environment.
Speaker Change: We did get benefit of this is a tax season. So there's tax refunds and that goes into People's user goes into People's DDA accounts.
Speaker Change: We'll have to see that.
Speaker Change: Tumors consumers the higher end consumer and the commercial clients are still.
Speaker Change: We're still looking for alternatives to regulate demand deposits. So we can expect that trend to continue as interest rates are very high.
Unknown Executive: But, you know, we do feel that our regular retail demand deposits are reflecting, you know, really the strength of our branch network, and they may have had a more of a significant pickup this quarter, although a lot of the refunds occur in April also, so we'll get some benefit from that in April. So that may have been a short-term thing, but in general, we feel pretty strong about our retail deposits. Great, thank you.
Speaker Change: We did see a regular retail demand deposits are reflecting really the strength of our branch network and they may have had a more of a significant pick up this quarter, although a lot of the refunds.
Speaker Change: April also so we'll get some benefit from that in April.
Speaker Change: So that may have been on a short term thing, but in general we.
Speaker Change: We feel pretty strong about our retail deposit franchise.
Speaker Change: Yes.
Speaker Change: Great. Thank you.
Operator: The next question in the queue is from Alex Twerdahl of Piper Sandler. Please go ahead.
Speaker Change: The next question is Alex <unk> of Piper Sandler. Please go ahead.
Alexander Roberts Huxley Twerdahl: I wanted to go back to a comment you made, Jorge, about just the amount of churn in the loan portfolio and kind of just the amount of new generation you need just to stay in, you know, to stay where you are. And then the yield lift that is kind of inherent with that. We say it's a nice yield lift this quarter. Like, you know, at 7.5% overall loan yield, can you give us a sense for, you know, what kind of loan yield lift still remains in the portfolio, assuming we see churn at similar rates to what we've seen in the past couple quarters?
Alex: Good morning, all.
Alex: Good morning, Alex.
Alex: I wanted to go back to a comment you made Jorge about just the amount of churn in the loan portfolio and kind of just the amount of new generation needs to stay in.
Alex: To stay where you are and then.
Alex: The yield lift that is kind of inherent with that we see.
Alex: It's a nice yield lift this quarter.
Alex: At seven 5% overall loan yields can you give us a sense for like what kind of loan yield lift still remains in the portfolio, assuming we see churn at similar rates to what we've seen in the past couple of quarters.
Alex: Yes.
Alex: Thanks.
Unknown Executive: Alex, I think I'd be lying if I told you I had that level of granularity. Let's look at the different components. The investment portfolio, we feel very comfortable that you're going to get a 300 basis point plus lift on that. I think with the loans, it depends on when those loans are made; it depends on what type of loans they are. I would expect, particularly with our commercial clients, that any renewals in this environment should reflect a higher yield, but we do see perhaps some... I guess at this stage, I will stick to the NII guidance, Alex.
Speaker Change: Alex I think I'd be lying if I told you had that level of granularity.
Speaker Change: Let's say, let's look at the different components of the investment portfolio, we feel very comfortable that youre going to get a three.
Speaker Change: 300 basis point plus lift in.
Speaker Change: I think with the loans it depends on when those loans were made it depends what type of loans. They are.
Speaker Change: I would expect particularly around our commercial.
Clients that that any renewals in this environment should reflect a higher yields, but we do see perhaps some.
Speaker Change: Maybe compression in some of those margins.
Ignacio Alvarez: Okay, you know, Nacho, earlier, you talked about some of the loan portfolio categories you expect to grow: commercial, construction, auto. Are there any categories that you'd expect to be a headwind in terms of overall balances that maybe would decline in the next year?
Speaker Change: I guess at this stage I will stick to the NII guidance.
Speaker Change: Alex.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Nacho earlier, you talked about some of the loan portfolio of categories do you expect to grow the commercial the construction yard are there any categories that you would expect to be a headwind in terms of overall balances that maybe would decline in the next year.
Yeah.
Speaker Change: Yes.
Ignacio Alvarez: Well, you know, we've tightened up some of our credit policies around some of the unsecured consumer portfolio. So I don't expect you to see a lot of growth in personal loans and credit cards. So those are really the only areas that I would pinpoint that I think we're not, you know, I don't feel, and it's for a reason, you know, it's because we've tightened up, so we can expect that those are probably, and personal loans especially are subject to, you know, amortization, so if we don't, you know, originate at the rate we were, it's going to go down. Those are the only two categories I would highlight.
Speaker Change: Well.
We've we've tightened up our some of our credit policies around some of the unsecured consumer portfolio.
Speaker Change: Don't expect you'd see a lot of growth in personal loans and credit cards.
Speaker Change: So those are really the only areas that I would would.
Speaker Change: With pinpoint that I think we're not I don't feel and it's for a reason.
Speaker Change: Because we tightened up so you can expect that those will probably.
Speaker Change: And personal loans, especially are subject to you know amortization. So if we don't.
Speaker Change: Originally at the rate we were going to go down.
Speaker Change: Those are the only two categories.
Speaker Change: Highlight mortgage depends on interest rates so.
Ignacio Alvarez: You know, it's not a great environment for originating mortgage loans because of the high interest rates. So we're, you know, basically limited to home purchases; nobody's really advancing now. However, we're holding more in portfolios, so that sort of makes up for it. So I think the mortgage may be more steady. I don't think, I don't know if it'll go down, but it'll be steady. But I do think that, you know, the person holding a credit card that we know.
Speaker Change: It's not a great environment for for originating mortgage loans, because the high interest rate, So basically limited to home purchases.
Speaker Change: Dancing now however, we are holding more on portfolio. So that sort of makes up so I think mortgage may be more steady I don't think I don't know if it will go down but it will be steady, but I do think that.
Speaker Change: Good.
Speaker Change: First of all as in a credit card.
Speaker Change: Yes.
Okay.
Speaker Change: Yes.
Speaker Change: Thanks for that color and then you alluded to a $17 $2 million mortgage in the press release and VPN that migrate into NPL is that a residential mortgage or is that multifamily.
Alexander Roberts Huxley Twerdahl: Thanks for that caller and then
Speaker Change: It's a residential mortgage I think it will give you more color on that.
Unknown Executive: It's a residential mortgage. I think Lidio will give you more color on that.
Ignacio Alvarez: He wants me to give you more color on that. Yeah, this was a loan we made for a very expensive home in New York. And it's not something we normally do. It was a special situation for a client that, you know, that had other relationships with us, and so it's really, in my opinion, it's, you know, but it is a residential mortgage, but you have to have a solid loan-to-value ratio. So we're not, we're not anticipating losing any money.
Speaker Change: Maybe even more.
Speaker Change: Yes. This was a loan we made it very expensive.
Speaker Change: I'm in New York, and it's not something we normally do.
Speaker Change: It was a special <unk>.
Speaker Change: Situation for our clients that had other relationships with us.
Speaker Change: And.
Speaker Change: So it's really.
Speaker Change: In my opinion.
Speaker Change: Something that.
Speaker Change: It's a one off so.
Speaker Change: But it is in residential mortgage.
Yes.
Speaker Change: Our solid loan to value ratio. So we're not we're not anticipating losing any money on that alone.
Speaker Change: I mean, it would it be like a like a high profile divorce or something like that that would result in something like that.
Speaker Change: Okay.
Alexander Roberts Huxley Twerdahl: I mean, would it be like a high-profile divorce?
Speaker Change: No.
Speaker Change: I don't think.
Ignacio Alvarez: I'm pretty certain it's not a divorce; I don't know all the facts, but it's just someone who went into MPLs. You know, it's again, it's a single loan to a single borrower on a residential property in New York, a very luxury property, something we normally did; we did it as an accommodation for business reasons. And, you know, I would, you know, it's a one-off.
Speaker Change: Again, it's it's not I'm pretty certain is not as voice I don't know all the facts, but.
Speaker Change: It's just.
Speaker Change: Someone who went into npls.
Speaker Change: Again, it is a single loan.
Speaker Change: A single borrower in a residential property in New York.
Speaker Change: Actual property something we normally did we did it as an accommodation for business reasons and.
Alexander Roberts Huxley Twerdahl: Okay, with that, when I look at the yields on the mortgage portfolio, which looks like they dropped this quarter, is that sort of interest, like reversal of accrued interest for
Speaker Change: It's a one.
Speaker Change: One off.
Speaker Change: Okay with that is when I look at the yields on the mortgage portfolio looked like they dropped this quarter is that would that be sort of interest.
Speaker Change: Like a reversal of accrued interest related to that loan.
Unknown Executive: There will certainly be some impact with that because we would reverse three months' worth of interest related to that loan. The mortgage portfolio does get impacted in Puerto Rico by tax-equivalent adjustments. I think in the fourth quarter, we may have had a positive benefit in the fourth quarter related to those adjustments. So it's more that the fourth quarter was maybe a higher yield because of tax-equivalent adjustments.
Speaker Change: I mean, there'll be there'll be certainly some impact with us because you would we would reverse three months worth of interest related to that loan in full.
Speaker Change: But.
Speaker Change: The mortgage portfolio does get impacted in Puerto Rico by tax equivalent.
Speaker Change: Adjustments Alex since then.
Speaker Change: I think in the fourth quarter, we may have had a positive benefit in the fourth quarter related to those adjustments. So it's more that the fourth quarter was maybe a higher yield.
Speaker Change: The tax equivalent.
Ignacio Alvarez: Okay, great. And then, as I say, remember that FHA loans in Puerto Rico are tax exempt to us here, the interest on the FHA loans.
Speaker Change: Adjustments.
Okay, Great and then I just wanted to if I recall.
Speaker Change: So nacho.
Speaker Change: Now, let's just say that remember that the FHA loans in Puerto Rico are tax exempt to us here the interest on the FHA loans.
Alexander Roberts Huxley Twerdahl: Okay. And then I just wanted to ask another one on multifamily just because you did provide some pretty good color and it is, you know, becoming a bigger issue for the investing community. Can you, do you happen to have the loan-to-values of some of the loans, you know, either the portfolio overall and particularly the loans that are coming due this year or maturing this year, as well as debt service coverage ratios?
Speaker Change: Got it okay.
Speaker Change: And then I just wanted to ask another one on the multifamily just because you did provide some pretty good color and it has become.
Speaker Change: Some are bigger issue for the investment community.
Speaker Change: And to have like loan to values of some of the loans either portfolio overall and particularly the loans that are coming due this year are maturing this year as well as debt service coverage ratios.
Speaker Change: Can you repeat the question I'm sorry.
Unknown Executive: Unknown Executive, Javier Ferrer, Ignacio Alvarez, Popular Inc.
Speaker Change: Whether we have more color in terms of loan to value ratio and debt service ratios.
Alexander Roberts Huxley Twerdahl: Could you repeat the question? I'm sorry.
Alexander Roberts Huxley Twerdahl: Whether we have more color in terms of the loan-to-value ratio and debt-to-service ratios on the multi-families. Let me do this. Oh, wow.
Speaker Change: The multifamily coming due this year.
Speaker Change: Okay.
Unknown Executive: I mean, I would say generally that we are on the right to 70 LONDOVALIO with debt service coverage in excess of 1.30. We will consider providing more detail in our future filings, but today, we don't have that information. Okay.
Speaker Change: I mean, I will say I will say that we underwrite.
Speaker Change: And then the loan to value debt service coverage in excess of 30.
Speaker Change: We will consider providing more detail on our future filings.
Speaker Change: We don't have that information.
Speaker Change: Okay.
Alexander Roberts Huxley Twerdahl: I appreciate you taking all my questions.
Speaker Change: I appreciate you taking all my questions.
Speaker Change: Yeah.
Speaker Change: Thank you again.
Operator: As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad. Our next question comes from Kelly Motta of KPW. Please go ahead.
Speaker Change: As a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad.
Speaker Change: Our next question comes from Kelly Motta K B W.
Kelly Motta: Hey, everyone. Good morning.
Kelly Motta: Please go ahead.
Speaker Change: Hey, everyone. Good morning.
Speaker Change: Most of my questions have been asked and answered thanks at this point.
Kelly Motta: Most of my questions have been asked and answered. Thanks, at this point, but I guess. The 14% ROTC target by 4Q25, you've talked about it a lot in the past, and I think you put it for the first time in writing in the proxy this year. Just wondering, I know we've spoken about how you anticipate getting there, talking about mostly top line and maybe a capital component, but, Asking a different way, what do you think are the biggest risks or headwinds that could cause you to fall short of that Just wondering how we should be thinking about that.
Speaker Change: But I guess.
Kelly Motta: The 14% ROTC target by <unk> 25, you've talked about it a lot in the past and I think you put out for the first time in writing and in the proxy this year.
Kelly Motta: Just wondering I know we've spoken about.
Kelly Motta: How you anticipate getting there talking about mostly top line, maybe a capital component but.
Kelly Motta: Asking in a different way what do you think are the biggest.
Kelly Motta: Risks or.
Headwinds that could cause you to fall short of that number just just wondering how we should be thinking about that.
Unknown Executive: Well, Hardy, do you want to take it? Sure.
Speaker Change: Well, how did you want to take sure.
Unknown Executive: As I mentioned earlier, there is a lot of effort related to the transformation that will drive operational efficiency for us to be able to get to those results. I think at the end of this quarter, we had something like 35, 40 ongoing transformation projects throughout the organization that all eventually contributed to that success in getting to those numbers. I think delays in the projects, extending where we don't see the lift or the benefits at the time that we think we're going to be able to see them could have an impact on that guidance. Certainly, the interest rate environment, things like that that generally impact bank earnings will have a spillover effect.
Speaker Change: As I mentioned earlier, there is a lot of efforts related to the transformation that will drive.
Speaker Change: Operational efficiency for us to be able to get to those results.
Speaker Change: I think at the end of this.
Speaker Change: Quarter, we had something like 35 40 ongoing transformation projects throughout the organization that all eventually contribute to that success to get to those numbers I think.
Speaker Change: Delays in the projects.
Speaker Change: Ending.
Speaker Change: Where we don't see the lift or the benefits at the time that we think we're going to be able to see could have an impact on that on that guidance, certainly interest rate environment and things like that.
Speaker Change: But generally impacted bank earnings.
Speaker Change: Have a spillover effect of that.
Speaker Change: Scott.
Kelly Motta: Got it. Um, that's that's helpful.
Scott: That's helpful.
Scott: And in your prepared remarks, you mentioned with capital planning one thing you're looking at.
Kelly Motta: In your prepared remarks, you mentioned capital planning, one thing you're looking at with regard to whether to come in again with some capital return is your TCE ratio, and that got as low as a four handle in 2022. I know we're not guiding specifically to CET1 yet or ready to, but I was wondering if there's any sort of line in the sand that we should be thinking about in terms of where you might be comfortable with the TC ratio in terms of like a bottoming level just to be mindful and we're, you know, modeling capital.
Scott: With regards to.
Scott: Whether that's come in again with US some capital return is your TCE ratio and that got as low as you know a four handle in 2022.
Scott: I know we're not.
Scott: Guiding specifically to CET, one yet or are ready to but just wondering if theres any sort of line in the sand that we should be thinking about in terms of where.
Scott: You might be comfortable.
Scott: With the TCE ratio in terms of like a bottoming level just to just to be mindful of Lamar.
Scott: Modeling capital.
Unknown Executive: I think, Kelly, when we look at CCE, obviously, there are levels that we're comfortable with, but it's not just a bright line, you know, black and white. We do like to look at the rate scenario, what is the projected rate environment, and what is our sensitivity in our investment portfolio. So all those things contribute to our confidence and the level that we're confident at. We believe that we will be able to come to you in the second half of this year with more information. Take into consideration all these things.
Scott: Yes.
Thanks, Kelly when we look at CPE.
Lamar: We obviously we are there are levels that we're comfortable at but it's not just a bright line you know black and white, we do like to look at the rate scenario. What is the projected rate environment. What is our sensitivity in our investment portfolio. So all those things contribute to our confidence in the level that we're at <unk>.
Lamar: <unk>.
Lamar:
Lamar: We believe that we will be able to come to you in the second half of this year with more information take into consideration all these aspects.
Lamar: <unk>.
Kelly Motta: Understood. Thanks so much. I'll step back.
Speaker Change: Understood. Thanks, so much I'll step back.
Operator: And we've had a follow-up call registered from Gerard Cassidy from RBC Capital Markets. Your line is open again.
Speaker Change: And we have a follow up like you said from Gerard Cassidy from RBC capital markets. Your.
Your line is open again.
Gerard Sean Cassidy: Thank you. Gentlemen, can you share with us the latest update on the Prepper bankruptcy proceedings? Obviously, you're a lot closer to it than the folks here on the mainland, but any insights on how it's winding down and possibly a final settlement sometime this year?
Speaker Change: Yeah.
Thank you.
Gerard Sean Cassidy: Gentlemen, can you share with us the latest update on the PREPA bankruptcy proceedings, obviously, you're a lot closer to the folks here in the mainland.
Gerard Sean Cassidy: Any insights on how it's winding down.
Gerard Sean Cassidy: Assembly and final settlement sometime this year.
Ignacio Alvarez: Yeah, I mean, they had a series of hearings. And obviously, they had hoped originally to have it done in the first quarter. I think we're probably looking now maybe second or maybe early part of the third quarter. You know, there's a lot of, it'll be done this year, one way or the other, I think. It's been delayed.
Gerard Sean Cassidy: Yeah.
Speaker Change: They had a series of hearings and.
Speaker Change: Obviously they had hoped originally if you haven't done in the I think in the first quarter.
I think I think we're probably looking now maybe.
Speaker Change: Second or second or maybe early part of third quarter. Yes. There is a lot of it will be done this year, one way or the other I think.
Speaker Change: It's been delayed.
Ignacio Alvarez: You know, there's been objections from many sides, some arguing that the proposed rate hikes that will pay for the continued charge are too high. Some of the bondholders are claiming that the payout is too low, so you've got people arguing all sides of the equation. But I think I'm pretty confident it may be not the second quarter, but, you know, the third quarter probably. This gets done this year, I think.
Speaker Change: Ben objections from many sides, so I'm, arguing that the proposed rate hikes.
Speaker Change: We'll pay for the continuing charger are too high that some of the volatile is claiming that the payout is too low so you've got people argue all sides of the equation.
Speaker Change: I think I'm pretty confident maybe not second quarter, but third quarter, probably because this gets done this year I think.
Ignacio Alvarez: Other than that, it's hard to predict because these legal proceedings are complex and the judges are, you know, trying to figure it out. There will be an appeal. Obviously, whatever happens, there'll be an appeal. Under the PROMESA statute, appeals are supposed to be handled expeditiously. I mean, there's always a chance that at the end of the day, at the final wire, they'll reach an agreement with some of the objecting bondholders. I don't think it's 100%, obviously, but you know, there's always that possibility. But I think this is, It would be hard to speculate exactly when, but I would go out on a limb and say it'll get done this year.
Speaker Change: Other than that it's hard to predict we're taking these legal proceedings are complex and the judges.
Speaker Change: Trying to figure it out there'll be an appeal, obviously whatever happens there'll be an appeal under the permissive statute appeals are supposed to be handled expeditiously I mean, theres always a chance that day.
Speaker Change: Debt at the end of the day at the final wire they have reached agreement with some of the.
Speaker Change: <unk> bondholders I don't think for 100%, obviously, but there is always that possibility, but I think this is.
I would be hard to speculate.
Speaker Change: Exactly when but I would go out in a limited it will get done this year.
Speaker Change: Very good and then just as a quick follow up can you remind us what drives the government's deposits you mentioned they are elevated right now talking about the securities earlier in the call, but what should we keep an eye on them for the government to draw down those deposits I know theres some seasonality due to the tax.
Gerard Sean Cassidy: Very good. And then, just as a quick follow-up, can you remind us what drives the government's deposits? You mentioned they're elevated right now and talked about the securities earlier in the call, but what should we keep an eye on for the government to draw down those deposits? I know there's some seasonality due to tax payments, but if there was a kind of a downward shift in them, what should we keep an eye on to see if that happens?
Speaker Change: But if there was a kind of a downward shift in.
Should we keep an eye on to see if that happens.
Ignacio Alvarez: I think the most important thing is what you mentioned, the increase is tax seasonality. I think now that we're paying debt on the public, you know, paying interest on the public debt, we have a July 1 payment that will come up. So there'll be a debt payment made on July 1. Other than that, it's really just the way the government runs.
I think the most.
Speaker Change: Thing is that you mentioned the increase is tax seasonality.
Speaker Change: Thank you.
Speaker Change: Now that we're paying debt on the public.
Speaker Change: We pay interest under public that we have a July July one payment that will come up so there'll be there'll be a debt payment made on July one.
Speaker Change: Other than that it's really just the.
Speaker Change: The way the government was one of the things that could impact the government.
Ignacio Alvarez: Now, one of the things that could impact the government that the fiscal board has mentioned is that, in the post-pandemic period, there's been a number of special packages, you know, for all state municipalities. Some of that money has been used by Puerto Rico for things like the education department and other things like that. That money runs out eventually, and it was limited.
Speaker Change: The fiscal board has mentioned is that.
Speaker Change: In the <unk> period, there's been a number of special.
Speaker Change: Our packages.
Speaker Change: We're all states and municipalities some of that money has been used by Puerto Rico for like the education Department and other things like that that money runs out eventually that was eliminated those part of that will have to be come from the from the treasury the.
Ignacio Alvarez: So part of that will have to come from the, you know, Treasury of the Puerto Rico government. I think going forward, as some of this post-pandemic stimulus relief comes down, you'll probably see Puerto Rico spending more. We continue to have more infrastructure projects, and part of those projects require Puerto Rico to pay part of the cost. So some of that will come down, you know; other than that, it's hard for us to judge.
Political government.
Speaker Change: I think going forward as some of these post pandemic state.
Stimulus relief comes down you'll probably see political spending more.
Speaker Change: We continue to have more infrastructure projects part of those projects with our political pay part of the cost.
Speaker Change: So some of that will come down.
Speaker Change: Other than that it's at.
Speaker Change: It's hard for us too.
Ignacio Alvarez: I mean, over time, we do expect that, you know, the liquidity will go down for the reasons I said. I mean, some of the money that they've been using for education and for health and other things will have to be replaced by Puerto Rico money from the budget. And I think part of the money that they have, you know, they need to spend on the infrastructure project to pay for our share. And then there's also some COVID money that has a term limit, so that if we don't use it, it has to be returned to the treasury.
Speaker Change: And over time, we do expect.
Speaker Change: The liquidity will go down for the reasons I said I mean, some of the money that they've been using for education and for health and other things will have to be replaced by Puerto Rico money from that from the budget and I think part of the part of the money that they have.
Speaker Change: They need to spend for infrastructure projects to put our share and then there's also some COVID-19 money that had a term limit so that if we don't use it has to be returned to the treasury.
Ignacio Alvarez: So, I mean, those are the panels. We don't have great visibility to the government. But those are the normal things that we see. Already, we saw the government, you know, the March numbers already reflect a significant amount of the refund because the government was refunding, is refunding, given the liquidity, refunding taxpayers much faster than it used to in the old days. So some of that has gone out, but those are the factors that we, frankly, see. Very good. I appreciate the call.
Speaker Change: So I mean those are the best handle that we don't have great visibility to actually to the government, but those are the normal things that we see already we saw the government.
Speaker Change: The March numbers already reflect a significant amount of the refund.
Speaker Change: The government.
Speaker Change: With refundings refund make given the liquidity, it's refunding tax rate is much faster than they used to in the old days.
Speaker Change: Some of that has gone out.
Speaker Change: But those are those are the factors that.
Speaker Change: Frankly, we see.
Gerard Sean Cassidy: Very good. I appreciate the color. Thank you.
Very good I appreciate the color. Thank you.
Ignacio Alvarez: Thank you. We have no further questions in the queue, so I'll turn the call back over to Ignacio Alvarez for any closing remarks.
Speaker Change: Thank you we.
Speaker Change: We have no further questions in the queue. So I'll turn the call back over to Ignacio Alvarez for any closing remarks.
Ignacio Alvarez: Yes, once again, thank everyone for joining your call and for your questions. We look forward to updating you on our second quarter results in July. Have a great day, and have a great week. Thank you.
Ignacio Alvarez: Yes, I once again, thank everyone for joining our call and for your questions. We look forward to updating you on our second quarter results in July and have a great day and have a great week. Thank you everyone.
Operator: This concludes today's call. Thank you for joining us. You may now disconnect your line.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: [music].