First Bancorp

NYSE:FBP

Earnings Call Transcript 2018-Q4

[Operator]

Good morning and welcome to the First BanCorp's Fourth Quarter 2018 Results Conference Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [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 sir.

[John Pelling, Investor Relations]

Thank you, Chad. Good morning everyone and thank you for joining First BankCorp's conference call and webcast to discuss the company's financial results for the fourth quarter and year end 2018. Joining you today from FBP are Aurelio Aleman, 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 that this call may involve 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 the 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 issued by First BanCorp, you can access them at our website at 1firstbankpr.com.

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

[Aurelio Aleman, President and Chief Executive Officer]

Thank you, John. Good morning everyone. And thank you for joining us to discuss our 2018 results. Please let's begin with the highlight for the quarter and the year on Slide 5 of the presentation.

First of all, I have to say that we're very pleased with the result achieved on the year following the storms. I want to recognize my executive team, our officers, our employees and our board for the great execution, hard work, achievements of the year that have really positioned the franchise well for 2019 and the future. This quarter and year-over-year, we did achieve important progress on our key objectives. First of all improve profitability; second, growth the loan portfolio.

The recent balance sheet optimizes our deposit mix and report progress on our capital plan.

On the profitability front, we close out 2018 with really strong fourth quarter, generating approximately 101 million of net income, which included a 53 million net tax benefit related to the partial reversal of our DTA valuation allowance. On an adjusted basis net income was 44 million, up 28% from the third quarter and our pre tax preparation income for the quarter was 67.6 million. For the year our adjusted net income was 137 million or $0.62 per share which is up nicely from the adjusted 108 million that we achieved in 2017.

I will let Orlando cover the adjustment during his presentation. Pretax preparation also grew nicely to 250 million for the year 2018 and tangible book value per share is now at $9.07. On the loan portfolio, originations and renewal for the quarter were really exciting, 1.1 billion we reached as part of our ongoing strategy to grow the commercial and consumer book and reduce residential with focus on originating more confirming mortgages. Commercial and construction origination and renewal increased 610 million during the quarter. Consumer and auto loan origination increased to 340 million during the quarter, both of which exceeded pre hurricane levels and resi mortgage origination were at 129 million.

Our overall loan portfolio increased 118 million for the quarter and this was impacted by 45 million reduction in mortgage and reductions in non-performing loans. The performing loan book grew 170 million during the year. Puerto Rico grew approximately 78 million employees [ph]. The region continues to contribute with healthy origination activity leading to 112 million medium loan growth in the quarter.

On the asset quality side, those are also very good. NPAs declined 56 million and now represent 3.8% of assets. For the year our NPAs declined 184 million or 28%. I think we made great strides derisking the loan book and selling individual non-performing assets during 2018. And improving asset quality continues to be a top priority for 2019. I think we're beginning the year in a good place at fairly stage and total delinquencies [ph] are at their lowest level in a decade.

Please let's move to Slide 6 to cover other highlights. On the deposit strategy front, overall deposits were down 40.5 million. But it's important that we look at the mix, Puerto Rico deposit grew 50 million and on that net 50 million growth, 45 million in non-interest bearing offset by 30 million reduction in interest bearing. Florida and ECR deposit declined slightly, Florida reduction of 44 million was driven by our cost optimization strategy and ECR was down slightly by 11 million.

For the year at the corporation level, we grew overall deposit net of broker by 567 million while continued to reduce rely on brokered CDs by 595 million. We have materially transformed to make up our deposit mix with non-interest bearing now representing 27% of our deposit base and broker down to 6%. We continue to focus on optimizing our mix through 2019.

Execution of our core deposit strategy is definitely supporting the stronger NIM. Our cost of total deposit including broker was 66 basis points this quarter or poorly two basis points from prior quarter.

Last but very important let's move to Slide 7 to touch on capital. Well, definitely our capital levels continue to get stronger, now, total capital reaching 2 billion. We were really pleased to announce the restatement of the common dividend this past quarter, while we cannot control the timing of this event. They are a priority for the management team and the board and we realize and we acknowledge the importance of returning the capital to our shareholders and continue doing so.

Looking out to 2019 and beyond, we do plan to use our excess capital first, to support organic and nonorganic growth in our market and implement other potential capital actions to return capital to our shareholders. We are optimistic with the starting momentum of the franchise across our decisions and we look forward to discipline [ph] grow opportunities in 2019 as we continue to deliver solid results.

With that I will turn the call to Orlando. We'll come back to the questions session.

[Orlando Berges]

Good morning everyone. As Aurelio mentioned, we had a fourth quarter with many positive points in different fronts. We posted a net income of $101 million or $0.46 a share which compares to 36 million or $0.16 a share in the third quarter. The results include the 53.3 million tax benefit he made referenced to. At the end of the year we reassessed the need for the valuation allowance on our deferred tax assets based on First Bank sustained period of earnings over the last few years.

The fact that some of the impacts that we saw as possible last year from the hurricane have been much lower and therefore we ended up updating our forecasts about future profitability. In the quarter we also needed to assess the impact that - the tax reform, the true tax reform had in - in Puerto Rico has on the existing DTAs. At the end we had a net tax benefit of 63 million. One timer recorded from the partial reversal of the corporation's deferred tax asset valuation allowance, this is net of our 2.5 million impact from the tax reform.

On the other hand we had to take one time noncash charge of 9.9 million related to also the impact of the tax reform on all remaining DTAs. We still have remaining about 68 million of deferred tax asset valuation allowance in First Bank, but it's realization that will depend mostly on the future levels of exempt income and capital gains to offset some of the components that we have. If we normalize net income for those items that are not necessarily reflective of what's core operating performance those items are detailed on page 26 of the presentation as well as on page 4 of the press release, which include obviously the reversal of the DTA valuation allowance, the impact of the tax reform, the hurricane related reserve release, among others.

On a non-GAAP basis the adjusted net income would have been 44.4 million or $0.20 a share, which compares to adjusted net income of 34.7 million for the third quarter or $0.16 a share.

Provision for the quarter was down 3.9 million for a total of 7.6 million compared to the 11.5 million we had on prior quarter. These equates primarily reflects a recovery of 7 million on a commercial mortgage loan that was paid off in the quarter as well as 2.9 million of hurricane related reserve releases on top of what - higher than what we had in the prior quarter which we'll touch on some releases. As of the end of the year at December, the remaining hurricane related qualitative allowance amounted to $19 million.

Net interest income for the quarter increased positively, we had a 5 million growth, which shows improvements in different categories. Net interest income on commercial and construction loans grew 2.6 million driven by both portfolio growth and the re-pricing of buyable rate loans - commercial loans. Consumer loans increased 2.5 million due to 82 million increase in the average balance based on the levels of originations and we also had some increases of over 1 million just over 1 million in interest income investment securities as the level of prepayments have reduced considerably.

Margin as you saw on the press release increased 23 basis points to 477, which reflects the variable rate re-pricing on the commercial book, the changes on the asset makes as we have continued to grow the interest - the high increase consumer portfolio and obviously the other components that are affecting the level of noninterest bearing deposits we continue to have as well as the fact that we continue to achieve resolution of the nonperforming which are transforming to then some performing kind of assets or reduction of liability needs.

Deposit cost increased two basis points as you saw and the better [ph] in Puerto Rico have continued to be fairly stable. However, we do expect that we'll start seeing some pressure. It's a little bit more obvious on the Florida market where it's been significant on both time deposits and another transaction, interest bearing transaction accounts. In Puerto Rico it's a little bit more on the time deposit side at this point.

Noninterest income was fairly equal to last quarter if we take out the fact that we had a 2.7 million loss in the third quarter from the sale of a nonperforming loan held for sale. Other than that we had improvement on fee based income of about 500,000 and we have lower income on mortgage banking from reduced levels of sales of portfolios originated.

Expenses overall were fairly stable with some increases in compensation, occupancy on business promotion offset by a reduction in other expenses related to the quarterly revisions we do on the - for the operational loss reserves. If we exclude OREO, the expenses for the quarter were 86.5 million and we've talked about this in the last few quarters. Our ongoing expense base has increased a bit as a result of the large investments that are being made in technology related projects as well as higher levels of marketing and incentive compensation as a result of the higher volume of business. As such, we believe that the quarterly expense base will be more towards the 87 to 88 range as compared to the 85 we had talked about before, obviously, that excludes the OREO expenses.

As Aurelio mentioned, we have continued the progress in [indiscernible] our nonperforming mostly organic strategies. Nonperforming assets declined almost 56 million in the quarter, which is 467 million, which is our 3.8% of assets, the largest driver being the 27 million sale of a legacy nonperforming loan in the VI. The rest of the reductions you can see on the different categories. It's the result of the efforts that financial assets group [ph] put to address different areas to achieve quality improvements on the portfolio. The inflows have been down. They were 4 million lower as well as early stage delinquencies, which have continued to be the at the lowest levels.

The result adversely classified commercial loans also came down by $71 million, which is also [indiscernible]. Charge offs were also down in the quarter, totaling - they were 12 million which is our 54 basis points on loans compared to 33 million or 1.5% of loans in the last quarter , the third quarter. The 21 million decrease is mainly two items, last quarter we took 12.5 million in charge off for write downs on loans that were transferred to held for sale, some of them are being sold or have been sold. And this quarter as I mentioned before, we had a 7.4 million recovery on a commercial loan that was paid off in the quarter.

The allowance ratio to total loans continue to be at a high level at 222, slightly down from the 230 we had us of September and the ratio of the allowance to nonperforming exceeds 62%.

Nonperforming commercial loans we carry at $0.56 and then we continue to monitor that monitor that based on the composition of the portfolio.

Before we go to Q&A, from the quarter I think it's important to mention a little bit about the year. A strong year as Aurelio mentioned. Net income was 201 million, which is $0.92 a share, which compared with 67 million or $0.30 a share. However, there have been quite a few moving parts over the last two years that includes items like the reversal of the deferred tax asset valuation allowance and the impact of the tax reform that I discussed previously.

A special tax benefit we realized in 2017 for a change in the tax status of some of the bank subsidiaries. The special provision that we took in 2017 for the hurricane with some subsequent releases in 2018 as well as some of the expenses associated with the hurricane. And so to normalize earning and be able to see the year, we have are excluded all these items as you can see the detail of the items on page 28 of the presentation and in the press release.

Adjusted on a non-GAAP basis, net income for the year would have been 137 million or $0.62 a share, which compared to an adjusted net income of 107 in 2017 or $0.49 a share. This a 27% improvement year-over-year and adjusted ROI, it's up to 112 of assets as compared to 90 basis points in 2017. Over all, significant improvement in the different components, net interest income being the largest driver and lower provision - adjusted lower provision being the second largest component, so overall extremely good year for the corporation.

Now I would like to open the call for questions.

[Operator]

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Ebrahim Poonawala with Bank of America. Please go ahead.

[Ebrahim Poonawala, Bank of America]

Good morning, guys.

[Aurelio Aleman, President and Chief Executive Officer]

Good morning, Ebrahim. I guess just first question Orlando, I think you mentioned right at the end in terms of the adjustments and the adjusted EPS given all the moving parts. I think

when we sort of think about the $0.20 in adjusted EPS that you reported for fourth quarter and the 67 million in pretax fee provision income, like when you look at the $0.20, do you think that's sustainable as you think about next year and I'm just thinking to make sure that we don't get ahead of ourselves around what you could earn even before baking into any capital deployment actions in 2019.

[Orlando Berges]

So we, I mean the $0.20 was extremely good and many components work out fine. I think that if you look at the different components, the net interest income has shown a pretty good clip of improvement driven by obviously some higher rates in the market and so re-pricing and the mix of the assets. So it's important that our consumer portfolio has continued to grow at a very good rate. I think that the margin on the short-term could be sustained with the way we're seeing the level of originations. The question, which is a difficult one, it's been - when those bears up in Puerto Rico will start catching on. The fact that rates increases seem to have stop a bit probably will help in that, but we continue to see the challenge in the Florida market. But in the short-term, I do believe the components combined with as I mentioned and we can continue with some of these reductions in nonperformance that helps a lot as we get rid of some of this non-yielding assets and transform it into either some kind of investment or reduction of a high cost funding that we have on the books, so that's one component. The other income items, I will say would be fairly stable from where we are now and the expense items I think it's the one that will see a little bit of pick up only because of some of the projects that are being completed, technology projects that - we have three large projects that are basically at a final stage. So with that and there could be some adjustment here and there, I would say 20, it's a - might be doable, it's on the high side, but it might be doable.

[Ebrahim Poonawala, Bank of America]

Got it, helpful and thanks for talking through all of that. And just separately in terms of deposit growth, so I understand what you called out in Florida, Virgin Islands and broker deposits and the growth in non-interest bearing that you had was quite strong again. As you think about 2019, how should we think about government fund inflows, other activities that could actually reaccelerate deposit growth at some point in 19' or do we expect more kind of a flattish outlook for deposit growth given the remixing and uncertainty on the federal fund inflows?

[Aurelio Aleman, President and Chief Executive Officer]

Ebrahim, Aurelio, I'll cover that one. I think the variable that we have to monitor all of us, it's really the speed of the inflows of federal funds, significant money flow into 18', which - and part of 17' we benefit a bit. The strategies are in place, the sales force are in place and we will continue to execute on that front. How much we can grow, it's really dependent on the speed of the inflow. We all know that with the closure of the federal government that things got delayed also, so we're monitor - I think we have to all be - monitor the timing and manage this on a quarter-by-quarter basis. At the end we're confident that funds will come, it's just a matter of how they show into the market. But we on the other hand - our market share of Puerto Rico it's still only 11%, so we do have a very active strategy to go after deposits and that continued to be so.

[Ebrahim Poonawala, Bank of America]

Understand, thank you and just one quick question on the tax rate going forward now 19', 20' should we assume more like a low 20s, 20%, 21% tax rate?

[Orlando Berges]

No, that's one thing I was going to comment that I should have commented on the discussion. The one component, remember that because of the large valuation allowance that meant that some of the items that were subject to valuation allowance depending on the actual results like what levels of charge offs we had or what levels of a taxable income we had. During the year you'll get some reversals built into your normal tax calculation. That lowers your tax rate a bit. With the recognition of the reversal of the valuation allowance, we should see some increases in effective tax rates that at this point I'm estimating that could be somewhere in the range of 28%, 29% effective tax rate for next year. Right now we were around 25% on a consolidated basis, so it would increase a bit. That would be the pressure on the net results that we're going to see on the other hand.

[Ebrahim Poonawala, Bank of America]

Got it. Thank you.

[Operator]

The next question comes from Alex Twerdahl with Sandler O'Neill. Please go ahead.

[Alex Twerdahl, Sandler O'Neill]

Hey, good morning guys.

[Aurelio Aleman, President and Chief Executive Officer]

Good morning Alex.

[Alex Twerdahl, Sandler O'Neill]

First off just want to drill on a little bit more to NPLs, you guys didn't look - it looks like you didn't move any of the NPLs to held for sale this quarter, which you've done in the past couple of quarters. Is that something that's reflective of appetite in the market for NPLs or are you seeing a little bit more optimism in yearend about being able to resolve some of these things organically?

[Aurelio Aleman, President and Chief Executive Officer]

We still have some held for sale that we're moving. Well, remember we also have OREOs, large commercial OREOs that are kind of in the same category because they're ready to move out, so that continues to be. If you just add those two components, we have plenty inventory to continue reducing obviously, the organic improvement of some of the assets, with some of that happened in the quarter, we expect that some of that will continue too. So it will continue to be a combination.

[Orlando Berges]

Remember that, the market has changed a bit of what we have seen during 2018. And this is a function of an assessment of the portfolio's to determine final disposition or expected final disposition strategy. So we've moved to held for sale all those loans that we thought that final disposition will be a sale of the loan as compared to others that there might be some resolution strategies. Clearly those are analysis that are done every quarter and it could change the way we see some this final disposition, so that's where it changed. But we - based on what we saw we did significant analysis during the second and third quarter to determine what we wanted to do with some of this nonperforming.

[Alex Twerdahl, Sandler O'Neill]

Okay. And then you kind of alluded to sort of the reason for higher expenses in 2019 as you had some projects that are kind of nearing completion. Are you able to elaborate a little bit on some of those projects? I know that you guys are kind of in a process of sort of transitioning, you've been cleaning up the balance sheet for a long time and maybe now almost to the point where, dare I say some offense. Are some of these technology improvements and projects kind of related to that?

[Orlando Berges]

Yeah, they are related to that. They are related to digital channels improvement and they are related also to some of the internal process improvement, ERP as an example and some of the analytics that have to do, we see so, which is also an important technology piece of analytics behind it.

[Aurelio Aleman, President and Chief Executive Officer]

Yeah.

[Alex Twerdahl, Sandler O'Neill]

Okay. And then just final question on the margin, the 15 basis points of yield expansion in the loan portfolio, how much of that was driven by the rate hike in September versus I mean, I know there's been some remixing in the portfolio as well. But was there anything like interest recoveries in that calculation in the fourth quarter?

[Orlando Berges]

No, there were none. All of it it's a function of - if you look at the two components, the consumer - the commercial portfolio, the CNI portfolio you probably saw there that had to pick up of a 50 or 60 basis points and then obviously you have a big push related to the fact that consumer portfolio has become a higher percentage of the total. And if you look at those, you're talking about above 8% kind of our average yields in those portfolios that you can see on the tables through the press release that you take a look at them carefully every time. So I would say those are the two and then you have to think that our resi portfolio, it's down, it's a lower yielding as compared to the consumer portfolio and it's a function of the strategy to try to originate more conforming paper to be sold. And obviously we're not originating enough paper, nonconforming paper on purpose to be able to substitute the levels of normal repayments we have in the portfolio every month. There's no special recognition of interest on something large or anything like that. It was it was all core components in there.

[Alex Twerdahl, Sandler O'Neill]

Great, thanks for taking my questions.

[Aurelio Aleman, President and Chief Executive Officer]

Thank you, Alex.

[Operator]

The next question is from Brett Rabatin with Piper Jaffray.

[Brett Rabatin, Piper Jaffray]

Hey, good morning guys.

[Orlando Berges]

Hi, Brett.

[Brett Rabatin, Piper Jaffray]

Wanted to ask I guess first, could you give us some color around the Florida growth of 110 million, what long segments you were growing there? And then just is the outlook for 19', is that predicated on Florida or growth in Puerto Rico? What's sort of a thought for 19' out right [ph] to the geographic areas?

[Aurelio Aleman, President and Chief Executive Officer]

Yeah, I think the - first of all yeah, it's across the board, mostly commercial but different segments of the commercial. Some of them we've been originating some construction loans on the commercial side, which some of them grew specifically in Florida. We have some corporate names that have some transactions that worked through the year that closed in the quarter. The same thing happened with the middle market segment, so it's primarily on the commercial side. When you think about growth broadly the second half of the year is more reflective of what - how 2019 will look, meaning the most recent two quarters. Obviously it's very kind of predictable, what we can do in consumer and mortgage. The commercial and corporate it's really deal driven. So sometimes we will close later than we expect or earlier, so that's also so, but obviously when - if you can see the net of the sales or nonperforming, Puerto Rico should growth that's our expectation in addition to achieving some additional growth in Florida.

[Brett Rabatin, Piper Jaffray]

Okay.

[Orlando Berges]

Yeah, we - Brett, yes, we do believe that we're going to see the same trends in 2019 from like residential it's going to go down. We still see growth potential on consumer on commercial in Puerto Rico as well as commercial in the Florida market.

[Brett Rabatin, Piper Jaffray]

Okay. And then want to go over to credit for a second. You sold the construction loan and you had some upgrades and classification of a couple commercial loans and so you're classified went down 71 million in the quarter. Would you anticipate additional migration of commercial loans

Out of classified going forward or maybe just give us some color on how you see credit progressing with the loans that you have in that bucket? And then just if you happen to have that classified Tier 1 capital?

[Aurelio Aleman, President and Chief Executive Officer]

Well, the objective is exactly - it's been there for a long time. Obviously, we have to do it on a core basis. We have no lost share agreement, so it takes a little bit longer on our side. So the objective is to both continue improving the legacy loans that still are the ones classify. These are legacy loans and continue improving them as things have normalized for the borrower or as a balance of adjusted or capital go back to sustain our levels or we do TDRs and also to continue to dispose specifically what is held for sale and what is on MPA. So that would continue to be the focus. Obviously, we know - we were doing - we were in a good trend before the hurricane that we had a disruption, now we're back on track and the goal is to continue moving down those 467, yeah.

[Brett Rabatin, Piper Jaffray]

Okay. And then lastly just on capital, 24% total risk space, what would stop you guys regulatory at this point from deciding to buy back at least some portion of stock or thinking about it at least. Can you give us any color on it? I know you're thinking about growth both organic and inorganic this year, but why not do some level of buyback.

[Aurelio Aleman, President and Chief Executive Officer]

Well, I think I did mention on the capital front, we - obviously, it's a priority to do both, to achieve some growth in the balance sheet, but also to implement some additional capital actions as we did in the last quarter. We were not able to announce to the market anticipate, reactivating the common dividend. When the time is right, we cannot control the timing of this event .When the timing is right, we will we will advise the market, but believe me it is a priority for the management team, it is a priority for the board to move forward in the national capital actions.

[Brett Rabatin, Piper Jaffray]

Okay, great. I appreciate all the color.

[Aurelio Aleman, President and Chief Executive Officer]

Thank you.

[Operator]

[Operator Instructions] The next question comes from Glen Manna with KBW. Please go ahead.

[Glen Manna, KBW]

Hi, good morning.

[Orlando Berges]

Good morning, Glen.

[Glen Manna, KBW]

I just have a quick question on the DTA and the VA. The bulk of the decrease looks like it was at the sub, so there's about 32 million in the VA remaining I guess up at the parent. So could you just explain to us what it would take to kind of recapture that piece of it? First what it is and then I guess what it would take the kind of recapture that piece up at the parent?

[Orlando Berges]

It's been like that since - for a long time. In reality, the parent company, it's a - the holding company doesn't have much in terms of revenues, but we do have some expense components in there that generate some - looking at the holding company, only some losses and unless we put some earnings in there, there will be a very unlikely - it's going to be very unlikely that we will recover any of that DPA that is sitting on the holding company. We would have to change the structure and so it's something that clearly we've been analyzing, but it's not that simple. And that has remained in there for a long time because of that and will probably remain. In the bank which is - when you mentioned subsidiaries is basically, it's the bank. Most of it it's a - what remains is a function of some capital losses that could be used against capital gains only, so it's difficult to predict the capital gain components. Some amounts related to the way tax laws are in Puerto Rico based on the exempt income you have per year as compared to - you're not allowed to use the panels up to the levels of exempt income. So it all depends on the composition of the exempt of taxable income on the books on the bank side. Those are the main components, but that difference that you mention it's not something that I can tell you that it can be realized easily, meaning the difference with the holding company components.

[Glen Manna, KBW]

Okay, thank you Orlando. Have a good day now.

[Orlando Berges]

Thank you.

[Operator]

The next question will be from Arren Cyganovich with Citi. Please go ahead.

[Arren Cyganovich, Citi]

Thanks. Just thinking about the loan growth that you've seen in Puerto Rico and you commented on auto and consumer being fairly stronger, have you changed your underwriting at all? Has there been any kind of change in the competitive environment, so kind of curious as to how you're viewing the origination environment in the competitive side there?.

[Orlando Berges]

We have not changed underwriting, there is - we have expanded sales activity, we have expanded outreach, there has been changes in the auto industry competitive environment with the exit of a large player, so that was planned for early less last year and that happened and we acted on it. And on the commercial, obviously, as we have continued to clean up the balance sheet and provide additional space, we have identified industries that we were not attacking before. So obviously, when you look at some of the growth or such event in the commercial in Florida also was driven by being fully staffed, which - that happened early into 18'. So that really - that is really - those are contributors to our outreach on our goal of actually growing the balance sheet. In Puerto Rico, we were not that active in that terms, obviously, looking at the overall situation we are expecting that the economy of Puerto Rico to continue to growth in spite of the potential timing of events of the fund, so that supports our strategy to growing certain segments in Puerto Rico.

[Arren Cyganovich, Citi]

Okay. And then on the M&A front, has there been any kind of increased activity or availability of potential strategic combinations or any loan portfolios that have come available?

[Orlando Berges]

We haven't heard anything publicly on that front, so there's - I think there's still - there's a lot of inflows of investors buying assets. We haven't heard anything publicly on the M&A front.

[Arren Cyganovich, Citi]

Okay, thank you.

[Orlando Berges]

Thank you.

[Aurelio Aleman, President and Chief Executive Officer]

Thanks, Arren.

[Operator]

The next question is a follow up from Ebrahim Poonawala with Bank of America. Please go ahead.

[Ebrahim Poonawala, Bank of America]

Hey guys. Just a quick follow up, Orlando I think given sort of your credit commentary, the migration trends that you talked about. How should we think about provisioning costs relative to the 13 million adjusted for the fourth quarter? Should they continue to go lower from here or is the run rate kind of the right - about 13 to 15 million the right way to think about it?

[Orlando Berges]

Well that's been the most difficult part of this business over the last 10 years, but based on the trends we've seen on delinquency and so I would have to tell you - I would have to say that I'm expecting provisioning to be in that level of 10 million to 15 million. We don't see any significant things that are going to become worse and make it worse, we still have nonperforming as you know and those are the challenges.

[Ebrahim Poonawala, Bank of America]

Got it, thank you.

[Operator]

The next question is also a follow up and it's from Brett Rabatin with Piper Jaffray.

[Brett Rabatin, Piper Jaffray]

Hi, guys. I just want to follow on macro Puerto Rico and there's been a lot of dialogue lately with PREPA and some other things on the island. Can you give us maybe your view on PREPA and just what happens with that as we go through this year? And then just thinking about the funds that are coming to the island, like are we starting to see renewed optimism about that or is that sort of tailing off in your view?

[Orlando Berges]

Brett, first of all PREPA obviously as you know we had no exposure to PREPA or to Puerto Rico bonds, so I think that continues to move probably slower than we expected and we hope for resolution. The only bond resolution that was resolved a was resolved in the last quarter was GDB, COFINA it's been boarded by the holders on a positive note, a pending court approval to move under COFINA and obviously the yields, there's still - there's noise, so it's early in the stage. So PREPA, they made some progress and as you know the bidding process is ongoing and some of the prioritization activity, classification of some of the generating plant is moving. We think there is a lot of moving parts there and there's a lot of governance behind it because everybody is involved including the fiscal board, including independent boards and special committee. So I think it's going to get resolved. There's been some stability on the services after the hurricane and some money was invested in improving that infrastructures. So obviously, it's very difficult to predict the speed of resolution, but I don't think it will have any change in the economy at all. Obviously, if another storm of that 92 will come, we have our challenges, but probabilities are difficult to predict on that front. Regarding the funds, obviously, they are assigned by Congress, there's been noise about using them for something else. We believe that's they're assigned - if they're assigned they're going to come to Puerto Rico, it's just the timing when they're going to show up. There is still a lot of work happening out there related to the reconstruction of the island and some of the funds are really designated to do that including infrastructure and housing. There are other labors that are included in the fiscal plan that I think we should monitor. Public private partnerships are moving ahead and there's proposals out there , there are opportunity for financing out there that are being shown to the banks, so that is taking the wrong - similar to what the government did with highways and the airport. Some of those projects are similar nature probably more similar to the airport on anyone else are coming to fruition. I think timing is going to be to [indiscernible] in terms of implementation, but, but the fact that they're moving, it's important. And I think progress, we expect more progress to happen if some of those matters, because 2020 is an election year and being an election year 2020, there has to be some resolutions prior to that. So we see that happening in every election cycle that things happen, some accomplishments get done in the over the last couple of years prior to the election, so that's our view.

[Brett Rabatin, Piper Jaffray]

Okay. Thanks for the color.

[Orlando Berges]

Thanks, Brett.

[Operator]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to John Pelling for closing remarks.

[John Pelling, Investor Relations]

Thanks, Chad. On the investor front, we have a couple of investor tours and a conference in February. On February 12 we'll be hosting Alden Securities for their Annual Investor Tour. That same week we'll be attending the KBW Financial Services conference in Boca, on February 14. And Piper has planned their Annual Investor Field Trip to Puerto Rico on February 27. We look forward to seeing a number of you at these events and we greatly appreciate your continued support. At this point we will end the call. Thank you.

[Operator]

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