Jorge Garcia: Alex, I think I’d be lying if I tell you I had that level of granularity, let’s say — 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 in that. I think with the loans, it depends on when those loans are made. It depends what type of loans they are. I would expect, particularly around our commercial clients that any renewals in this environment should reflect a higher yield, but we do see perhaps some maybe compression in some of those margins. I guess, at this stage, I will stick to the NII guidance, Alex.
Alex Twerdahl: Okay, not sure earlier, you talked about some of the loan portfolio categories you expect to grow the commercial, the construction, and the 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?
Ignacio Alvarez : Well, we’ve tightened up our, 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, I don’t feel and it’s for a reason. It’s because we’ve tightened up, so we can expect that those are probably and personal loans, especially are subject to amortization. So if we don’t originate at the rate we were, it’s going to go down. So those are the only two categories I would highlight. Mortgage depends on the interest rate. So it’s not a great environment for originating mortgage loans because of the high interest rates. So we’re basically limited to home purchase, others are refinancing now.
However, we’re holding more in portfolio, so that sort of makes up. So I think mortgage may be more steady. I don’t think they’ll go down, but it will be steady. But I do think that personal and credit cards that were not expecting on.
Alex Twerdahl: Okay. Thanks for that color. And then you alluded to a $17.2 million mortgage in the press release in BPNA that migrated into NPL was that a residential mortgage? Or is that multifamily?
Ignacio Alvarez : It’s a residential mortgage. I think Lidio will give you more color on that. He wants me to give you more color on that. Yes. This was a loan we made a very expensive home in New York, and it’s not something we normally do. It was a special situation for our clients that had other relationships with us. And so it’s really, in my opinion, it’s something that it’s a one-off. So but it is a residential mortgage. But you have a solid loan-to-value ratio. So we’re not anticipating losing any money on that level.
Alex Twerdahl: I mean would it be like a high-profile divorce or something like that, that would result in something like that?
Jorge Garcia: No. I don’t think, again, it’s not, I’m pretty certain it’s not a divorce. I don’t know all the facts, but it’s just someone who went into NPLs and it’s again, it is a single loan to a single borrower in a residential property in New York, a very luxury property. Something we normally did. We did it as an accommodation for business reasons. And I would, it’s a one-off.
Alex Twerdahl: Okay. With that, when I look at the yields on the mortgage portfolio, it looked like they dropped this quarter, is that, would that be sort of interest like a reversal of accrued interest related to that loan?
Jorge Garcia: I mean there’ll be certainly some impact with that as you would — we would reverse three months’ worth of interest related to that loan. But the mortgage portfolio does get impacted in Puerto Rico by tax equivalent adjustments, Alex, since then 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. Sorry, Ignacio?
Ignacio Alvarez : No, I just say, remember that the FHA loans in Puerto Rico are taxes in for us here. The interest on the FHA loans.
Alex Twerdahl: Got it. Okay. 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 a bigger issue for the investment community. Do you happen to have like loan to values of some of the loans, either portfolio overall and particularly the loans that are coming due this year or maturing this year as well as debt service coverage ratios.
Lidio Soriano: Could you repeat the question, I’m sorry.
Ignacio Alvarez : I can complete it. Whether we have more color in terms of loan-to-value ratio and debt service ratios on the multifamily, can we do this year?
Lidio Soriano: I mean, I would say, generally, I would say that we underwrite any loan to value, debt service coverage in excess of 1.30. We will continue providing more detail in our future filings. But today, we don’t have that information.
Operator: Our next question comes from Kelly Motta of KBW.
Kelly Motta: Hey, everyone. Good morning. Most of my questions have been asked and answered at this point. But I guess the 14% ROTCE target by 4Q ’25, 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 number. Just wondering how we should be thinking about that?
Ignacio Alvarez : Jorge, do you want to take it?
Jorge Garcia: Sure. As I mentioned earlier, there is a lot of efforts 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 contribute to that success to get 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 could have an impact on that guidance. Certainly, interest rate environment and things like that, that generally impacting bank earnings will have a spillover effect of that.
Kelly Motta: Got it. That’s helpful. And in your prepared remarks, you mentioned with capital planning, one thing you’re looking at with regards 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 just 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 TCE ratio in terms of like a bottoming level, just to be mindful on we’re modeling capital.
Jorge Garcia: I mean, Kelly, when we look at TCE, I mean, obviously, there are levels that we’re comfortable at, but it’s not just a bright line 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 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 aspects.
Operator: And we’ve had a follow-up registered from Gerard Cassidy from RBC Capital Markets.
Gerard Cassidy: Thank you. Gentlemen, can you share with us the latest update on the proper bankruptcy proceedings? Obviously, you’re a lot closer to it than the folks here in the mainland, but any insights on how it’s winding down and possibly a final settlement sometime this year?
Ignacio Alvarez : Yes. I mean they had a series of hearings and obviously, they had hoped originally to have it done in the, I think, in the first quarter. I think we’re probably looking now maybe second or maybe early part of the third quarter. There’s a lot of — it will be done this year, one way or the other, I think. It’s been delayed. 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 claiming that the payout is too low. So you’ve got people arguing all side of the equation. But I think I’m pretty confident, maybe not second quarter, but third quarter probably this gets done this year, I think. Other than that, it’s hard to predict because these legal proceedings are complex and the judge is trying to figure it out.
There will be an appeal. Obviously, whatever happens, there will be an appeal. Under the permissive statute, appeals are supposed to be handled expeditiously. I mean there’s always a chance that at the end of the day, in the final wire, they reached an agreement with some of the objecting bondholders. I don’t think put 100%, obviously, but there’s always that possibility. But I think this — it would be hard to speculate exactly when, but I would get a limit, say it will get done this year.
Gerard Cassidy: Very good. And then just as a quick follow-up. Can you remind us what drives the government’s deposits? You mentioned that they’re elevated right now. I’m talking 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, what should we keep an eye on to see if that happens?
Ignacio Alvarez : I think the most thing is what you mentioned, the increase is tax seasonality. I think now that we’re paying debt on the public, paying interest on the public debt, we have a July 1 payment, they’ll 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. 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 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 limited so part of that will have to be, come from the treasury of the Puerto Rico government.
So 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. Part of those projects require Puerto Rico to pay part of the cost. So some of that will come down. Other than that, it’s hard for us to judge. I mean over time; we do expect 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, they need to spend for the infrastructure project to put our share. And then there’s also some COVID money that had a term limit so that if we don’t use it, it has to be returned to the treasury.
So I mean, those are the handles. We don’t have great visibility actually to the government. But those are the normal things that we see. Already, we saw the government, the March numbers already reflect a significant amount of the refunds because the government was refunding, given the liquidity, it’s refunding tax rates much faster than they used to in the old days. So some of that has gone out. But those are the factors that frankly we see.
Operator: 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.
Ignacio Alvarez : Yes, 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. Bye.
Operator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.
