Alex Twerdahl: Thanks for taking my questions.
Jose Rafael Fernandez: Yeah, thank you for your call.
Operator: Thank you. Our next question comes from Brett Rabatin with Hovde Group. Please go ahead.
Brett Rabatin: Hey, good morning.
Jose Rafael Fernandez: Good morning.
Brett Rabatin: Wanted to start with credit. And we’ve seen obviously credit continues to be pretty good. But we are seeing this as I guess everyone kind of an expected a normalization on consumer and auto. And I missed Maritza’s comment on the 4Q trend versus going forward and that normalization. Was the comment that net charge-offs would be lower going forward relative to 4Q or can you maybe just give us some color on your expectations for charge-offs in the consumer and auto book? Thanks.
Jose Rafael Fernandez: So when you’re referring to the charges-offs, you’re obviously alluding to the consumer and auto charge-offs that Maritza mentioned in her remarks. And this is the way I look at it from a macro perspective, Brett. The economy in Puerto Rico is solid. It’s doing well. The consumer has much more liquidity than they had pre-pandemic. The economy is much better than it was pre-pandemic also. So that’s kind of the underlying environment that we’re operating in. To give you a little bit more color, specifically on the auto loan book, I’ll ask our Chief Risk Officer, Cesar Ortiz to give you a little bit of color on the auto book so you guys understand how we see this.
Cesar Ortiz: Thank you, Jose. The — one other thing that I want to highlight in terms of context, taking the opportunity during 2022 and ’23 of the increased demand in loans, in auto loans, we took the opportunity to improve and tighten our underwriting standards. So if you look at the portfolio composition in terms of prime Composition as of December 2023, we have an 82% prime composition, compared to 64% prime composition during back in fourth quarter of 2019. So that basically is giving us comfort that our levels of returning to normalcy will be better than pre-pandemic level.
Jose Rafael Fernandez: And, Brett, to your point about the charges, we expect them to increase slightly or level off around sometime mid-year as we continue to see the tighter credit standards that we put in 2022 and 2023, potentially generating lower levels of charges-offs. For the next several quarters, we expect charges-offs on the auto book similar to the fourth quarter as we start to normalize, but still better than pre-pandemic levels.
Brett Rabatin: Okay. That’s helpful. And then on loan growth, obviously, strong production on the commercial side. Can you talk maybe a little bit about how you expect loan growth to play out this year, it was obviously — I don’t expect double-digit growth in Puerto Rico every year but you obviously hit that 10% mark in ’23. What do you think about commercial production going forward, Jose? And then maybe just loan growth for the year?
Jose Rafael Fernandez: First, thank you for highlighting the fact that it’s hard to replicate 10% loan growth every year. So I appreciate that bone that you throwing at us, but the way we see this is we see auto loan originations normalizing and trending slightly lower. Consumer probably relatively flat in terms of loan originations, and we see a good opportunity on the commercial side. Small, mid-size, and little bit larger type of loan opportunities here in Puerto Rico, we see good strong pipelines. We still see strong good demand. We see private capital being deployed in the economy in Puerto Rico, and that’s kind of an area of opportunity for us as it was in 2023. So that’s kind of how we’re looking at this in terms of loan growth.
If the economic grows to 2%, 2.5% as has been predicted, we expect to grow between 3% and 4%, our loan book. Note that we expect residential mortgage book to go down still during the year, as we’re seeing less and less demand for us in that line of business.
Brett Rabatin: Okay. If I can sneak…
Jose Rafael Fernandez: Yeah. And as we sell some of those conforming loans. I’m sorry.
Brett Rabatin: Okay. Sorry, if I could sneak in one last one just around fee income, obviously, the wealth management, life insurance bucket benefited from, I guess, you call it unusual numbers in 4Q. Is it fair to assume that those line items go back a little lower? Maybe any outlook on fee income relative to the fourth quarter?
Jose Rafael Fernandez: Yeah. Remember, fourth quarter is impacted by the insurance contingent commissions that we get every year. So yeah, I think it will trend back down to the more normal level, around $30 million as Maritza mentioned, a quarter.
Brett Rabatin: Okay. Great. Thanks for all the color.
Jose Rafael Fernandez: Yeah. Thank you, Brett. Have a great day.
Operator: [Operator Instructions] Our next question comes from Kelly Motta with KBW. Please go ahead.
