First BanCorp (FBP) 2020 Q4 法說會逐字稿

Good day, and welcome to the First BanCorp Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to John Pelling, Investor Relations Officer. Please go ahead.

Thank you, Elissa. Good morning, everyone, and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the fourth quarter and fiscal year ended 2020. Joining you today from First BanCorp are Aurelio Alemán, President and Chief Executive Officer; and Orlando Berges, Executive Vice President and Chief Financial Officer.

Before we begin today's call, it is my responsibility to inform you this comment on certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from forward-looking statements made due to important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them on our website 1firstbank.com.

At this time, I'd like to turn the call over to our CEO, Aurelio Alemán. Aurelio?

Thank you, John. Good morning, everyone, and thanks for joining today. We wish you all a healthy 2021.

Please let's move to Slide 4 to discuss the highlights of the year. We're definitely very pleased with our results for the year, and I'm truly proud of what our team was able to accomplish overcoming all the many challenges posed by the pandemic in the operating environment. It really was a transformational year for our company with the acquisition that closed on September 1, which has further expanded our market share, solidify our position in Puerto Rico, with now over 30% growth in our customer base, reaching 675,000 customers.

We're also very pleased with the technological advancement on the year and our digital preparedness. Our clients' adoption of digital channels continue to improve during 2020, reaching an increase of over 33% in low gains and digital transaction increasing over 55% for the year. It is a priority to continue investing in technology infrastructure projects and digital. And so we continue driving efficiency as we progress in parallel with the integration. We're definitely very focused on the integration and has been running on schedule and is planned to be completed by the end of the summer.

On the economic side, the macro and geopolitical landscape in Puerto Rico, things continue to be improving. The economic measures stemming from additional stimulus and funding will definitely provide additional support to those impacted by the pandemic and the overall environment. Lockdowns continue at a different layer, but when we look at December activity, it was actually fairly healthy considering the limitations in operating hours. Most impacted sectors, as we know, continue to be hospitality and retail.

On the other hand, we're entering 2021 on very solid foot and a fortress balance sheet to support that economic recovery. We have very strong liquidity, solid coverage and very strong capital to begin the year with.

For the year, we generated $102 million in net income, $0.46 per share, shy to the $167 million that we generated in 2019, definitely impacted by the economic effects of the pandemic and the increased provision driven by CECL and the acquisition. Pretax preparation was strong, increasing 6% to $300 million with actually only 4 months of our combined company. And in spite of COVID, actually loan activity, in fact of COVID loan activity, which impacted loan activity, we'll cover that later. And obviously, in spite of the yield curve that the banks are operating, which definitely impact the top line revenue.

Loan origination renewal for the year reached $4.4 billion, an organic core deposit growth, a record growth of $2 billion. So it was really a very positive core year for the company.

Now let's move to Slide 6 to cover the highlights of the quarter. For this quarter, as we announced this morning, we generated net income of $50 million, $0.23 per share. This compares to $28 million in the past quarter. It's important to highlight that this is the first full quarter of operation of the combined franchise. PP&R came in very strong with $86 million, up from $77 million in the prior quarter. And I think, importantly, we were past the moratoriums, and we're very closely monitoring asset quality metrics. The asset quality metrics remains stable. And obviously, there is focus on those borrowers, negatively impacted by the effect of the pandemic. We really say it is early to predict final inflows to NPA created by the pandemic. But when we look at initial metrics, post moratorium, delinquency metrics as of year-end still compare better when we look at December '19, pre-pandemic levels.

As I said, we continue to invest in technology to better serve our customer. During this quarter, we implemented a new online and mobile platform for credit cards, and we also continue the rollout of our new branch digital one platform. And then when we look at capital, CET1 17.3%, definitely, post-acquisition impact, still very, very strong and among the highest.

So please let's move to Slide 7. I'd like to expand a bit on loans and loan activity and deposit. As I said, loan oration activity was robust for the quarter, $1.4 billion. This excludes great connectivity, primarily growth was in the commercial and the auto portfolio. I think we all know that commercial activity, it's seasonal. And yes, we have a very solid quarter of deals that got delayed in the year.

We also have some volumes on the mainstream loan programs and PPP. So if we exclude mainstream and PPP, originations still increased by $278 million to $1.2 billion, so still strong. The overall portfolio now is at $11.8 billion, declined slightly from prior quarter, I will say, primarily due to strategic reductions in residential. We continue to originate primary conforming loans, which has helped the noninterest income and also, we received repayments of about $49 million on the PPP loan forgiveness process.

For this quarter, we anticipate another approximately $100 million of repayment in PPP. Obviously, it depends on the speed that SBA process the forgiveness. And we're now, obviously, as you know, working in round 2 of PPP, which was recently approved. Our initial estimates are around $250 million in loans during the first half of 2021 on PPP loans.

We know that this could replace some of the normal commercial volume over the next months as it happens in the first round of PPP. But definitely, this is a great support to the small businesses. We expect these loans to be smaller, more granular and to be more focused on the smaller businesses.

On the deposit front, there is ample liquidity in the market. We continue to see inflow flows. We continue to see deposit growth, and we expect the year to continue on that trend. So we really focus on increasing loan generation. We have excess liquidity that we need to exploit. And when we look at the quarter, core deposits were up another $257 million. The pipeline, it's growing. Obviously, consumer and mortgage trends continue very solid and very consistent. And as always, commercial is always more deal driven. So we're working to build that pipeline.

Now let's please move to Slide 8. I think it's important to highlight that the earnings power of our franchise now reached a new high with $86 million of PPNR on the combined operation, again, being only the first quarter of this. The enhanced funding profile of the combined institution also contributes to mitigating some of the yield curve impact on the overall yield of the portfolio. And obviously, now we have more customers to reach more customers to go after for loan generation.

Looking into 2021, obviously, there's going to be some noise still because of the integration. The first half of the year is definitely focused on integration. We want to finish that by summer. So there are some expenses that are there to be able to achieve the full benefit of integration. So they will be primarily focused in the first half of the year.

And then on the second half of the year, it's important to know that as we -- market recovers, everything reopens, which is what we expect. And as we grow revenues, there's also some variable expense tied to these revenues that could bring some increase. We're targeting a long-term efficiency ratio of 55%, following the completion of the integration. I want to make comment that we really need to -- we realize that -- recognize that it's challenging for banks to achieve mid 50s in the current difficult environment. So we also expect, hopefully, some improvement in the curve at some point in time at the end of the year.

Let's move to Slide 6 to slightly touch on the capital and the balance sheet. Again, liquidity continues to build in the quarter. So we have -- we continue to see excess cash. Reserve cover remain at the similar level of prior quarters, so very strong reserve coverage at 3.3. And then capital is again very strong with CET1 at above 17% after completing the acquisition.

As I said in the last call, capital deployment opportunities remain a priority and are the focus of management and board. Last night, we announced the approval to increase the dividend this quarter to $0.07 per share, definitely driven by current and projected earnings. And as I commented in the past earnings call, during this quarter, we're actively working on the updated stress test and updated capital plan to be presented to our board in order to conclude on potential additional capital actions moving forward. So with that, I'll turn the call to Orlando and will come back for questions. Thank you.

Good morning, everyone. Aurelio mentioned, we had a strong quarter, $50 million in the quarter or $0.23 a share, which compares with $28 million last quarter, $0.13 a share. Again, keep in mind that the quarter do -- does reflect the first full quarter effect of the acquired operations. We only had 1 month of those results in the third quarter of 2020.

The quarter included still some merger and restructuring costs, $12.3 million this quarter compared with $10.4 million last quarter. And also, keep in mind that last quarter, we had day 1 CECL allowance for the cooperation of almost $39 million. And we recognized an $8 million reversal -- a partial reversal of the deferred tax asset valuation allowance, which also reflected on results.

Net interest income for the quarter, it's up $29 million. A lot has to do with the $1.7 billion higher average loan balance we have in the quarter, which includes the Santander acquisition, obviously, the full effect, but also new originations on the commercial and consumer loans for the quarter. Both were partially offset by -- so Aurelio made reference to also the fact that we have continued to reduce the mortgage portfolio, which is down about $113 million as compared to September 30. As well as the $49 million reduction in PPP loans, some loans have been submitted for forgiveness, and they were paid off in the quarter.

The quarter also we recognized $1.1 million of interest income we collected on nonaccrual loans, mostly charged off non-accrual loans that were recovered. And the repayment of the PPP loans resulted in an acceleration of $700,000 of commissions on those loans.

On the quarter, we also had a reduction of about $800,000 in interest expense. This is -- even though the overall interest-bearing liabilities went up $2 billion from the full quarter effect of the transaction and continued increase on deposits. So that is significant. We saw an 18 basis points reduction on the funding cost during the quarter as compared to last quarter.

Margin was 395, as you saw on the release, a couple of basis points higher than last quarter, which was 393, but it does reflect 4 basis points positive impact from the $1.1 billion of nonperforming interest collected and the $700,000 on the PPP loan acceleration of fees.

Noninterest income for the quarter is $30 million. It's up $5 million. If we consider that last quarter had $5 million of gains on loss -- gains on sales of securities, we didn't have much this quarter. So excluding that, those $5 million noninterest income went up, again, $5 million. $2.5 million was service charges on deposits. Full quarter of Santander acquisition plus increases that we are starting to see on volume of transactions. The second and third quarter expenses were lower. The variable component of the expenses were lower in transaction-related fees. And a transaction-related volume, therefore, fees were also down.

Mortgage banking activities, we continue to see strong originations, a lot of refinancing. A significant part of it, it's conforming paper that we end up selling. So we had 500,000 increases in those gains on sales of some of those mortgage loans. Also during the quarter, we recognized $1.4 million on fees on main street loans we originated during the quarter. $184 million of loans were originated under the main street lending program, and we sold the 95% participation to the government as elasticated in the program.

Expenses for the quarter were $134 million, $135 million, which is up from $107 million, again full quarter effect. Those expenses, again, include the $12 million in merger and restructuring costs for the quarter. So far, from the start of the process, we have incurred approximately $36 million in merger and restructuring costs as part of the transaction. And we expect that there will be an addition of somewhere between $26 million and $30 million happening mostly on the first half of 2021 as we complete integrations convergence and a number of other things that are ongoing in the integration process.

Pandemic expenses, again, cleaning cost, additional security and things like that were $1.1 million, basically similar to the $1 million we had in the third quarter. If we exclude all these items, expenses went up $25 million, mostly, again, from having the full quarter of the acquired operations, but also the higher transaction volumes on debit, credit card and some other components increased cost. Plus some additional items and some $900,000 in incentive compensation increases. We had $2.3 million in technology fees and the increased amortization of the intangibles associated with the construction was about $1.5 million higher for the quarter.

On the other hand, if we look at credit-related expenses, that were slightly down, were $1.8 million compared to $2.2 million in last quarter. This is one item that's been affected by -- obviously, by the moratorium programs and the delays on foreclosures and some of the legal processes in the market. Over the next couple of quarters, we expect some increases in these categories as foreclosures and other legal processes come back to a normal level.

Allowance for credit losses at December was $401 million, slightly down from about $402.6 million we had in September. However, the allowance for credit losses on loans was $385 million -- $386 million almost, which is $1.2 million higher than that September. The ratio of the loan allowance was 328 as compared to 325 in September.

The provision for the quarter, as is under release, was $7.7 million, which compares to 40 -- almost $47 million in the quarter. But again, the third quarter included the $38.9 million provision -- day 1 provision, we put in to comply with seasonal requirements for non-PCD loans on the acquired operations.

For this quarter, the projected macroeconomic scenarios use for calculation of the allowance for credit losses showed improvements in many of the economic variables, including unemployment, which is a critical driver as compared to what we used in the third quarter. However, we -- the CRE index shows a deterioration in the quarter, mostly due to longer projected recovery time frame, especially on commercial retail real estate. As a result of the required provision for credit losses for the commercial portfolios went up. And we booked a provision of $22.3 million in the fourth quarter and the reserve or the allowance for credit losses increased to $152.7 million or 2.7% of loans from about 2.3% of loans last quarter.

In the case of residential mortgage, on the other hand, the improvement of macroeconomic variables, combined with the reduction in the portfolio that I mentioned, the $113 million reduction resulted in a release of credit losses of $9.8 million for the quarter. And same thing on consumer side, the improvement on the macroeconomic variables resulted in a release of $2.3 million in reserve requirements.

We exclude the PPP loans on a non-GAAP basis, the ratio of the allowance to loans would be $339 million, which is still a very healthy allowance coverage for possible losses. In December -- it was $338 million in September, so it stayed very consistent. In terms of asset quality, nonperforming were basically flat from last quarter, $294 million. Nonperforming loans increased $3.8 million in the quarter, $2.6 million of the increase was in residential portfolio and $1.4 million in the consumer portfolio.

On the other hand, the other real estate owned came down by $6 million driven by sales. We've sold $5.8 million of residential real estate, other real estate that we had on the books. With the expiration of the moratoriums, what we did see in this quarter was an increase in inflows. Inflows of nonperforming were $32.9 million compares to $18.4 million in the third quarter. But if you compare the inflow this inflow level to pre pandemic, these were very much in line to what we had -- what we saw in the December of 2019 and the first quarter of 2020. Early delinquency showed similar trends. We also saw increases in early delinquency from September levels, but it's still at levels that are below what we had at December of last year. So it's been still very consistent.

Regarding capital ratios, I think that on the nonperforming -- before we go to capital, I think that it's important to mention on the nonperforming, the way we see it's a -- we do expect that there could be some increases, not major numbers, but some increases in nonperforming in the first half of 2021 as we complete some of this process with customers (inaudible) moratorium and had impacts associated with pandemic. And then by the second half of the year, those would get back to normal levels. So it's a temporary thing. We feel it's going to be seen in the first half of 2021.

Regarding capital, again, Aurelio already touched it strong capital ratios. I do want to mention that leverage ratio shows a decrease from September, but it's all related to the fact that September, we only had 1 month of (inaudible) operation. Therefore, average balances, which are used for the leverage were lower. The level of leverage resulting of 11.3%, still very healthy and well in line with what we had expected at completion of the transaction.

Regarding the year, again, Aurelio touch on this. I don't want to go into a lot of detail, but clearly, the biggest impact was the provision. We -- net income for the year was $102 million or $0.46 a share, but it was affected by $130 million increase in provision, which includes pandemic impact and the fact that we did record the day 1 CECL allowance of $39 million I mentioned before required for the loans -- of the non-PCD loans we obtained on the transaction. Adjusted pretax pre-provision for the year was up 6% to $300 million from $284 million. So it was a pretty good improvement, and that obviously includes some additional months from the acquired center operation. NPAs year-over-year decreased $24 million to $294 million, and we continue to work on the process of getting those numbers down.

With that, I will open the call for questions.

(Operator Instructions) The first question today comes from Ebrahim Poonawala of Bank of America.

This is Chris Nardone for Ebrahim. So appreciate the comment that you guys are continuing to work on your capital plan to send to the board. But is there anything specifically holding up a buyback announcement either your comfort on the macro outlook or anything deal integration related? If you can address that? And any potential timing, whether first half is realistic, that would be really helpful.

There's obviously steps to get there, to get to the final plan updated with the more recent data of the combined entity. So that process is undergoing. And once we conclude, we go to the required approval. So we expect to -- between now and the next call give more front news on any potential capital actions.

Okay. That's very helpful. And then just 1 separate follow-up. I appreciate the mid-50% long-term efficiency guidance. Can you guys just discuss whether that assumes a higher rate outlook on either the short end or long end? And what's a realistic time line to achieve that, assuming the economy bounces back as early as the second half of this year?

We're assuming that, that assumes that the economy, yes, starts to see reopening in the third quarter. And obviously, we still have activities of integration in that quarter. So our goal is really by the end of the year.

But clearly, your reference to rates make -- come to play here. At this point, we've been modeling mostly based on the current forward curves that you see on Bloomberg, that would be a good indication. And obviously, still does show a significant amount of increase in rates. It would definitely help. But we do have to go through the completion of the integration and achieving some of the integration savings through this process.

Next question comes from Alex Twerdahl of Piper Sandler.

First off, I want to make sure I heard what you said there, Aurelio, correctly on your commentary on additional capital actions. It sounded like you said that between now and the next earnings call in April that you hope to have some more firm news. Is that right?

That's correct. Yes. Obviously, we're working in the process. And as I mentioned in the last call, we're consistent with the plan, closing the year, having a combined bank, having the combined stress test going to the approval process and completion of the documents and presented to our board, it's a sequence of events in this type of activity. And hopefully, by the next call, we can give you a more firm action plan.

Okay. Great. And then just in terms of how that process works, is it based on year-end numbers that you update your stress to test annually? Is it kind of an annual process that you go through? Or is it a more fluid process depending on market conditions and et cetera?

Obviously, economic forecasts are updated frequently. So it depends on the frequency that you see viability in the economy. If things are stable, you don't necessarily have to do it every year in a bank of our size. Obviously, we have significant changes in economic forecast over the last years. The most recent one obviously shows a better prospect of the economy for 2021. And hopefully, that continues. But that's the reason behind it. You have to be -- you have to make sure you assess what is the latest economic forecast and applied to new scenarios.

And with the acquisition, Alex, it's a significant change in portfolio. So we're running full set of stress testing on portfolios on the combined portfolios, just to make sure that everything is on line with what our estimates were as we were working on the transaction. And that is a significant component of any capital planning analysis. So that's -- those steps are ongoing as we speak on going forward that stress testing of the portfolio.

Okay. And then as you kind of go through that stress testing process, I mean, what sort of are the variables that matter? Do you look at sort of adversely -- an adverse case a capital level, kind of DFAST type number as sort of helping to be sort of the guide frame for where you need to operate today? Or how should we think about the capital levels on a go-forward basis, both like the severely adverse scenarios, but also just how much capital you need to run with in a normalized environment?

Yes. What we have done over the years is come up with -- as part of that stress scenario come up, with what we believe are some of the levels of, let's call it, cushion or levels of buffer that we feel we should keep based on the current scenarios and the composition of the portfolio. And with that, and well-capitalized level and all of that, we come up with what we feel is the ongoing run rate of capital we should keep on the books and that should be the basis to determine how much is the excess capital which we have now.

Okay. That's helpful. And then the securities purchases that you did during the fourth quarter, when in the quarter were those executed? And just kind of -- is there going to be some carry through impact in the first quarter of next year on NII from just that liquidity deployment?

There were a few things going on, on that. Number one, remember that we sold the end of September, some of the portfolios of the treasury portfolios we acquired from Santander, which ended up with a really, really low deal after purchase accounting treatments. So we sold off those. Those were reinvested through October. Most of it happened, I mean, the settlement dates, most of them were between half, the second the middle of October and the end of October.

After that, with deposit increases and the liquidity, we have continued to reinvest and obviously, the level of prepayments continue to be seen on the portfolio. So those are reinvested. So those have been throughout the quarter. The challenge is that as you know, we don't take credit risk or we avoid all credit risk on the investment portfolio. We try to keep the credit risk on the loan portfolio. And the deals out there are not -- reinvestment deals are not large, as you all know, unless you take a lot of extension risk and we don't feel, at this point, it's something we want to extend too much.

So that's been the challenge, and it's creating some reductions on the overall yield of the portfolio. But a bit compensated with the fact that we've been originated a good share of demand deposits as part of the growth. So that helps on the mix of funding. But investment portfolio, I don't think it's -- I don't come with a vendor portfolio to be a big contributor to improvement of deals.

Okay. And then just on the other side of the balance sheet on the other interest-bearing deposits, nice tick down in the fourth quarter to 54 basis points. Where do you see that trending to over time, assuming there is no change in the rate environment?

We -- the -- I mean, the question is that, changing the rate environment. But clearly, the biggest -- we have already done a lot of repricing of some of the transaction accounts. The time deposit account is taking a bit longer to go. The market in Puerto Rico, is going to be always a little bit higher than the states. There might be a possibility of improvement as we reprice those. We've been eliminating some of the broker cities that were there.

We still have some longer-term repos that are fixed, and they cost a lot of money. So we're still trying to work on those. And there is a little bit of a margin on those time deposits. I'm taking it down. To be honest, I haven't done a calculation to be able to say how much it could be this year, but there will be a few basis points in reduction if rates stay where they are with repricing of term deposits.

Okay. And then just final question for me. As I think about the reserve level and some of the inputs there. Appreciate what happened this quarter. And I know there's probably a fair amount of that qualitative aspect to the reserve as well. Do you see the reserve coming down in a more meaningful way before the economy really reopens in full, or do we really need the effective rollout of the vaccine and the hotel sector to kind of come back online and things like that before the reserve can come back down to a more historic levels or even your, sort of, CECL day 1 level?

The -- I mean, our portfolios are heavily driven by a few macroeconomic variables in the estimation of process. Unemployment being a key one, and unemployment is really tied up to what you just mentioned. It's reopening and what we see on those businesses that are affected. Recovery in the hotel industry, still we see impact as well as retail commercial real estate, we still see impact.

If we -- if that starts opening up and the unemployment components and GDP components start to show improvement, that should definitely help on the level of reserves to take it down. Provisioning, on the other hand, it's going to be a mix of, obviously, as we put in new loans, it depends on that mix of loans because the older loans that are repaid because of the time frame remaining on those loans, carrying lower reserve percentages as compared to the new loans that are coming in with full life ahead. The reductions in mortgages do create some reductions in reserves. So it's going to be a little bit of a mix in that.

We see significant improvements, we can see the -- on the economy, I mean, we can see some offsets of reserves on -- required for growth with reserves required being released based on ratios. But it's still a little bit early. We -- our assumptions are not that, that's going to happen early in the year, if any, it's going to start happening towards the end of the year. We don't see the need of large reserve additional provisioning levels, I mean, but what we do see -- we do expect to see some level of provisioning still being required.

Okay. I appreciate that color. And just actually one final question. As I think about expenses for 2021 as you kind of approach the full integration of the deal midyear can you help us think through the synergies and sort of cost expectations coming out of the back side of the year? What the run rate should trend towards?

The -- okay. A little bit of few factors come in. Number one, keep in mind that expenses for the second and third quarter of the year were really lower because of the volumes out there in the market. So we should base it more what we saw on a running rate, starting point running rate in December -- first quarter -- of December '19 and first quarter of 2020, which is more normalized level.

The savings are going to come from full integration of the systems. As we are going to save a good amount of money on processing costs savings are going to come from that we instituted a voluntary separation program. Not all the people left have left already, some people left at the end of November. But there are other people that are staying through conversions. So those savings, we won't start seeing them until the second half of 2021.

Also, in the process, we've been investing in some additional changes. We -- I think we have mentioned this before in some of the calls. So for example, we're just running out a full change of the teller and platform system. It's an expensive system. It's starting to be depreciated. We didn't have that in the expense base before. But clearly, we should be -- preliminarily, I would say that we should be in that range of $120 million to $125 million in expenses. But we're continuing to work on trying to finalize all of that, Alex, as we go through all the different details of agreements that are in place, when they can be eliminated still negotiating some things on when you are adding things to -- things, I mean, the increased volume to your current contracts, so we're still negotiating some of those.

And that's when we'll see the full extent of all the savings that we can finally realize, even though we're still shooting for what we have said before, as part of the transaction, and we have identified a number of components that are very much on track of what we expected. So at this point, it's that range what I'm looking at by the third quarter or something like that of next year as we complete some other processes of integration and renegotiation.

(Operator Instructions) The next question comes from Glen Manna of KBW.

Most of my questions have been asked and answered. So I'll just ask one about NCOs. It looks like you had a recovery in commercial mortgages this quarter. And I was just wondering if maybe you could give us some color on that. And then in the overall outlook, for NCOs, what would your expectations be at peak of NCOs mid next year and then a decline? And just how are you kind of thinking about that?

The recovery was -- we had a couple of cases. The main one was a very old case that was fully charged off. In the U.S., and we were able to recover finally that amount and a smaller amount and another case, in Puerto Rico. Those were the recoveries. So some of these old cases, you continue to work on.

The question is very good. We -- obviously, the fact that we had to put a lot more reserves on the books does indicate that there should be some increased charge-offs. We do believe that we're going to see some of the implications of moratorium, pandemic on the business side to start happening in this first half of 2021. And we do expect that there will be some charge-offs. The speed of the recovery could be a driver of when and how much we end up realizing the -- of those losses.

But clearly, you don't end up estimating increased reserves without being able to estimate or having to estimate charge-offs. So we should see normal levels. Remember that if you say consumer portfolio, for example, moratoriums lasted somewhere between August and September. And some of them, the 120 days to 180 days in credit cards, you don't start seeing those until the first half of 2021. And that's when you finally realize how much is really just temporary delinquency vis-à-vis permanent delinquency that ends up being charge-offs. The commercial side, you go more on 1 on 1 and you start identifying, and it's more of an industry related what we are seeing now. But clearly, we should expect the first half of the year to have higher level of charge-offs than what we had over the last 2 quarters.

This concludes our question-and-answer session. I would like to turn the conference back over to John Pelling for any closing remarks.

Thank you, Elissa. On the IR front, we look forward to seeing you virtually on February 10 and 11 ate the KBW Winter Financial services symposium as well as March 16 for the KBW virtual investor conference. We appreciate your continued support and look forward to seeing you soon. At this time, we'll conclude the call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.