Alex Twerdahl: Okay. Thanks for taking my questions.
Operator: Next question comes from Kelly Motta of KBW. Kelly, please go ahead.
Kelly Motta: Hi. Thanks for the question.
Ignacio Alvarez: Good morning Kelly.
Kelly Motta: I guess carrying on with that, and I got a little turned around earlier in the call when you were talking about net charge-offs and the reserve. I don’t know if I picked up on that clearly. I just wanted to circle back. It looks like in your ACL movement in Slide 12, you added about $63 million related to consumer portfolio changes. Just wanted to confirm if that’s related to that deterioration that you see in the consumer portfolio and if that implies that some of the increase that you are expecting may already be in your allowance.
Lidio Soriano: That portfolio change is a combination of things. It is portfolio growth, changing credit quality, is replenishing the net charge-offs for the period. So, it is all of that combined that leads to the $63 million that you see in the slide.
Kelly Motta: Got it. That’s really helpful. And then I guess touching – turning around to the tax rate, it’s come down a bit. Can you talk again, I know there is some unique factors in Puerto Rico. Can you talk about what’s taken your effective tax rate lower? And what could cause us to come in the high end versus low end of that range?
Carlos Vazquez: Yes. I mean the drivers of the fourth quarter were the two I mentioned, Kelly, is because of the effect of the additional expense of the FDIC assessment we ended up changing the mix of taxable versus exempt income, and we ended the quarter with much higher proportion of exempt income versus non-exempt income, that obviously affects our tax rate. The other considering factor is that we finished our 2022 tax returns and that resulted in a benefit that also lowered the taxes in the fourth quarter. So, those are the two effects. I certainly hope not to see another FDIC assessment and definitely not at the size of this one moving forward. So, that part of the condition should not repeat itself. And we already filed the ‘22 taxes.
So, I don’t think we can re-file them again anytime soon, although there is always reviews and adjustments on those things. So, I think – and I will look at my colleague here, Jorge, who is born a tax expert I think the conditions that led to that variation are pretty syncretic and pretty unique to last quarter.
Jorge Jose García: I would say – this is Jorge. As we go forward, I mean certainly the composition of taxable versus tax-exempt income, and that mix is always going to impact that range that we are giving you. So, if that is something grows faster, or the contribution of it because of the disallowed expenses, etcetera, becomes a higher proportion, our overall effective tax rate will come down. So, that condition will exist beyond any type of period adjustments that are more unique.
Carlos Vazquez: That’s why we give you a range.
Kelly Motta: Okay. Thank you. And I appreciate all the guidance. Maybe talking about fees, can you – it looks like it implies an increase, at least with the high end relative to last year. Can you discuss some of the initiatives you have taken on one? And then two, have you done a review at all how any of the proposed interchange and overdraft might impact your fee income?
Carlos Vazquez: Yes. Let me take the second part of your question first because it’s the simplest to answer. I think in the last webcast, we were asked of the potential effect of the elimination of late fees on credit cards. We mentioned that our estimate of the potential effect of that was something around $9 million. The additional things that are being discussed now that were not on the table last quarter is a potential reduction in overdraft NFS fees. We don’t have NFS fees for retail clients in either of our two banks. We do have some overdraft fees. But the effect of that is somewhat muted because overdraft fees in Puerto Rico are already capped at $15 for current [ph] and the proposal and the high end of the proposal is $14.
So, in that front, and of course, the proposals can change, our best guess is that the effect could be something between $500,000 and $2 million worth of lost fees. And then the last piece of the puzzle that is in discussion now is the potential changes in interchange fees for debit. And our best guess right now and that could have an effect of up to $50 million or something in that ballpark. So, those three pieces are – again, all these are estimates. It will depend on how the final rule comes out and the level that we end up setting and when it happens and everything else. But those are the best estimates we have a potential effect as far as lower fees. Now, when we talk about the fee for ‘23, I want to make sure that we don’t lose context.
We lost a significant amount of fees in 2022 as the year evolved because of changes in NFS and overdraft fees. So, our guidance went down and not immaterial amount because of our recognition that we had lost stuff fees in 2022. Now, we ended doing a pretty good job, and if you just look at how our fees have changed over time, you probably won’t be able to tell that in 2022, we lost a significant amount of fees because we are pretty good at substituting them with other income in the fee category. The main contributors to that substitution are the two things that Ignacio mentioned. Number one, we have re-priced our offering of cash management services in the corporate sector, and that brought in additional fees. And number two – well, yes, the main driver was that the re-pricing of cash management services.
So, we ended up conceptually making up for the lost fees in 2022 and the year ended up pretty flat. We expect some of the transformation efforts we are doing to continue to add – contribute to the fee income of the company. That, in part, is why we are increasing the guidance somewhat. It’s not a big increase, but it’s an increase that is not unimportant.
Ignacio Alvarez: Yes. We also saw an increase in the interchange fees from our small commercial credit card. I think that’s the second factor. I don’t think I have mentioned it, but that’s the second factor.
Carlos Vazquez: Thank you.
Kelly Motta: Great. That’s helpful. Last question for me, do you have where new loans are being originated now just to get a sense of the power of redeploying those cash flows that are coming off?
