Q2 2022 First Bancorp Earnings Call
[music].
Hello, and welcome to today's first Bancorp <unk> 2022 financial results My name is and I'll be coordinating your call today.
If you'd like to register your questions. During the presentation you may do so by pressing star followed by one on your telephone keypad.
If you'd like to withdraw your question. Please press star followed by two.
Now I'd like to turn the call over to remind Rodriguez.
But strategy and Investor Relations Officer.
Joseph Please go ahead.
Thank you Elliot and good morning, everyone and thank you for joining first Bancorp's conference call and webcast to discuss the company's financial results for the second quarter of 2020.
Joining you today from first Bancorp are Aurelio Lehman, President and Chief Executive Officer, and Orlando way to his executive Vice President and Chief Financial Officer.
Before we begin today's calls 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 the 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 at our website at F. B B investor Dot Com at this time I'd like to turn the call over to our CEO .
Yeah.
Thank you Ramon and good morning, everyone and thanks for joining us today for the end of the school.
Please move to slide forward to this call the highlights of the quarter.
As we reported we continue to perform exceptionally well during the second quarter. We earned $74 seven mainly only net income or <unk> 38 cents per share.
And de lever, our fifth consecutive increasing adjusted pretax pre provision income by reaching a record of $118 8 million during the quarter.
This result would achieve under its quite challenging global economic backdrop.
And definitely demonstrate our capacity to execute and responsibly grow regardless of the operating environment.
I would like to thank all our teams in Puerto Rico, Florida, and Louisiana for the commitment and execution during the first of all the year.
Net interest income increased five 7% linked quarter to $196 2 million.
And the margin expanded by 21 basis points to four point too.
So we recorded a provision for credit losses of $10 million.
Primarily reflecting an overall increase in the loan portfolio.
And increasing so don't view that as reflected in the forward because it will start the macroeconomic variables and the impact on qualitative reserve.
Asset quality continued to improve during the quarter with nonperforming assets decreasing by 9 million now 247 million driven.
Driven by reductions in nonaccrual residential mortgage loans and pay downs on nonaccrual commercial loans.
The ratio of the ACL for loans and finance leases.
Two loans held for investment slightly increased to 225% during the quarter.
On the capital front, we continue to execute on our capital deployment plan.
And we purchased approximately 7 million shares of common stock for a total purchase price of $100 million.
This was done under the previously announced $50 million stock repurchase program.
We ended the second quarter was 17.2% common equity tier one quite strong.
Leaving little room to execute on our established capital plan over the next quarters, obviously, you know taking into consideration any any changing market conditions.
Let's move to slide five to review the policies of loan performance.
We continue to registered loan growth up gross our targeted business segment during the water they saw our consumer and commercial.
Loan portfolio balances well, they're dumping belongs grew by 144 million when compared to first quarter, driven by increases of $131 million and consumer loans of 59 million in construction on commercial loans offset by a decrease of $45 million in residential mortgages.
Total LOE Marine Asia, Florida water were strong.
Which excluding great Gotta do the Hedgehog Dvd's reached $1 4 billion, an increase of 281 million when compared to the first quarter. This is primarily attributed to higher commercial and consumer loan originations.
I have to say that now we're truly the marine ACR D. V. D is a bulk prevent them at levels and we expect that this continued to be sustain under the current market conditions.
Which should result in additional loan growth to second half of the year.
A core deposit net of government and broker decreased by $60 million when compared to the first quarter on the other hand government deposit increase of 100 and say when it takes media.
Deposit market grow in Puerto Rico, and I will say decelerate the build in the first of all the year.
<unk> 2021 'twenty two new one significant increases.
However, when we look at our reported violence, there still 31% up both pre pandemic levels.
Yeah, let's let's move to slide five to some additional you know outlook.
Outlook.
Well definitely when we look at you know there was some uncertainty in the global macro conditions. When we can see it all you know geopolitical dangerous inflation.
What's going to happen with future battle into the rates.
Obviously that that impact any operating background, notwithstanding our capital position and liquidity profile.
Coupled with I have to say its growing economic tailwind in the MA market in Puerto Rico continued to support our growth D. CS.
Puerto Rico, the labor market.
Improve again with.
With labor force above pre pandemic levels, I'm doing employment rate, reaching a multi decade low of six 2% in may.
The economic activity index, which is the indicator that is highly co related to GMP.
Has continued to sustain an upward trend and already surpassed pre pandemic levels.
The resolution of the government debt.
Process definitely will allow government officials to shift their efforts toward facilitating the deployment of the 50 billion still obligated decided to a pandemic relief fund still pending to be dispersed.
The other good use of this one will be key to resolve the low standing structural issues and will support economy going forward.
While we're still probably remain center are providing the best Omnichannel experience for our clients during the quarter, we continue our investment in our digital.
The tools and services to eat del engagement across all of our platforms continued to improve.
Retail banking users grew by three with burn 8% linked quarter.
Mobile banking business needle banking users increased by 50% and the application was launched in April .
We continue to capture over 40% of all deposit transactions to detail our service channels.
In addition, this quarter. We began we went up a partnership with an established fintech firm to provide a fully detailed commercial lending platform for small business loans.
We now got brothers consumer mortgages, and small business loan obligations to search over to digital platforms.
All this is done in business have allowed us to expand out, whereas the original rich video physical infrastructure, while still optimizing our existing branch in there which will include the execution of two additional branch consolidation opportunities during the second half of 'twenty one 'twenty two.
In summary, we're very pleased we continued to make great strides in building the franchise and achieve our strategic objectives.
Our fortress balance sheet complemented by.
Positive tailwind in our main market should contribute to meet the gate.
The rising market challenges across the globe and should allow us to continue supporting our clients and delivering value to shareholders.
With that I would like to turn the call over to Orlando to provide more details on our results. Thanks tool.
Good morning, everyone.
I thought that Leo mentioned results for the quarter were strong we reached $74 7 million 38 cents a share.
Slightly down from the 82 6 million, which you had last quarter, but there were two major components in the quarter.
First the impact of the rising market interest rates.
On the loan growth led to an increase of $10 6 million in net interest income.
Right.
All information.
Florida.
The provision for credit losses. This quarter was unexplained so about $10 million, which compares with a net benefit of $13 8 million.
The provision.
Flex obviously decrease on the portfolio.
Well as the increased uncertainty that is included as part of the forecasted economic macro variables that we used for the calculation of reserves and provisioning.
Charge offs in deepwater.
We're better than last quarter and that help on the other hand.
The net interest income totaled $196 million in the quarter, which is increased $10 6 million I just mentioned.
As compared to $185 million to $185 million, we had last quarter.
Margin margin expanded 19 basis points.
From 381, 2% to 4% 5% growth in the quarter.
If we look at components loan repricing in the quarter represent approximately $3 5 million of the increase in interest income for the quarter.
And the increasing in the portfolio balances if we exclude the.
The BBB a reduction.
And Oh, an additional $1 9 million in interest income.
Reduction in BBB decreased interest income by $1 $2 million in the quarter.
The investment Securities and cash based on repricing and investments at higher rates improved by $5 3 million interest income improved by $5 3 million.
Leading leading to an increase in yields obviously.
They reduced premium amortization as prepayments have come down on the portfolio.
This quarter also had one more day than last quarter.
That's about one 5 million in net interest income for.
For the quarter.
As I mentioned the overall.
Yield on earning assets improved.
Yellow, earning assets went from 406 last quarter to $4 25 in the second quarter.
While the cost of all interest bearing liabilities decreased one basis point from 44 basis points to 43 basis points.
Deposit costs for the quarter was fairly consistent but we are expecting some increases in the third quarter.
Tied to the final adjustments radar interest rate adjustments that happened in June and the ones that are expected to happening in July .
Once the fed meets Uh huh.
However, overall, we do expect to achieve some some additional margin improvement in the third and fourth quarter of the year.
Looking at non interest income.
It shows a reduction in the second quarter, mainly as a result of the collection of annual contingent commissions that happened in the first quarter of the year.
However.
The other large component is that we have seen decreases in the mortgage banking income as.
As the level of originations of conforming mortgages that are that are that are being sold in the market have come down.
Driven by obviously, the higher conforming mortgage interest rates.
<unk> shipped on originations.
On the expense side non interest expenses.
For the quarter were $108 3 million.
Which compares with $106 7 million in the first quarter.
Expense levels.
<unk> continued to benefit from the gains that are being achieved on the Oreo disposition.
This quarter, we had.
One 5 million gain on Oreo properties NATO net of operating expenses of oreos.
And as we have mentioned in prior quarters, we expect that eventually.
This will revert to having a net expense from handling repossessed properties.
Rather than having these gains.
But still we have some some properties on the Oreo portfolio that were move at lower volumes that they are being sold today. So that there. There is some some spill positive impact expected in the next quarter.
During the quarter. We also had the second quarter. We also had $1 7 million in expense reductions associated with the <unk>.
Resolution of matters that had been previously accrued which improved the expense base.
Looking at some of the other large component, we saw employee compensation and benefits increased $1 $7 million this quarter.
And we expect some additional increases in the third quarter as we continued to fill vacant positions.
Execute the salary merit increases that we have planned for the third quarter of the year.
In reality, we are still running at a higher level of vacancies are normally taken longer than we had anticipated in filling those positions, but we continue to pursue that.
The other component is that we saw we had a professional service fees increased by 600000 in the quarter.
And definitely as we mentioned in the past we expect some additional increases in both technology costs and professional fees.
As we continue to execute and implement some of them ongoing technology projects that are underway.
We have discussed as we have because in the Paas im looking at expense trends.
If we exclude Oreo.
The other two items I mentioned on expense adjustments with our second quarter expenses would have been about $111 $5 million in the quarter.
Adding project that compensation and technology costs.
Expenses for the third quarter, we expect them, excluding oreo to be around $113 million range.
Obviously any anybody effort on Oreo would offset some of that.
And for the fourth quarter, we see expenses, excluding the <unk> in a range of $1 14 to 115 slightly lower than we had originally mentioned to you on the last call and we continue to pursue options.
On improving our cost base.
So we have a couple of branches are underway benefit of those is not large, but it's mostly going to have start happening next year not next year.
On a patiently.
Good ratio for the quarter was extremely good at 47, 7%.
Which is lower than last quarter.
And a lot has to do with improvement in the revenue components.
Look at the normalized expense levels I just mentioned.
<unk> improvements in revenue components.
We believe by the end of the year will be more closer to 50% as opposed to a 52%.
Target we had given.
Last quarter based on the combination of the expense base and the revenue components.
In terms of asset quality trends continue to be positive nonperforming assets decreased $9 million in the quarter to $147 million.
Compared to $156 million in the first quarter and NPA now stand at 76 basis points of assets.
We had reductions in Oreo from sales, we have reductions in commercial and residential from collections. So it's been.
Pretty pretty consistent and inflows to nonperforming loans decreased in the quarter by $5 2 million last quarter was we had 21 $6 million in inflows. This quarter was only $16 4 million on the overall portfolio.
Early delinquency, which is defined as a 30% to 89 days past due also decreased by <unk> in the quarter they were lower by $8 2 million.
Primarily.
For commercial relationships that that ended up being.
Renewed that matured last quarter and were renewed this quarter.
We'll consistently.
Currently in terms of payment.
Net charge offs as I mentioned for the quarter were lowered they stood at 21 basis points that includes a $1 $2 million in commercial loan recoveries.
Compared to 24 basis points, we had in the first quarter.
The allowance for credit losses at the end of the second quarter was $264 million.
It's $4 million higher than last quarter.
The allowance on just loans, its $252 million up $7 million.
Which.
It reflects basically the increase in portfolio balances as well as the additional.
Uncertainty that has been reflected as part of the forecasted economic variables that I mentioned before.
Large component was on the consumer portfolio.
We had.
$131 million increase as Aurelio mentioned, and obviously sensitive very sensitive to any changes on on unemployment rates that it's part of the macroeconomic variables.
The ratio of the allowance.
Stand at $2, 25, which compares to $2 21 quarters.
On the capital front Aurelio mentioned that we have continued with the execution of the capital plan capital ratios continue to be very strong.
Can see on the chart that tier one common is an example.
Only decreased five basis points from 17, 7% last quarter to $17 two.
And the impact on the other capital ratios with similar.
Tangible book value continued to be affected by the OCI adjustment.
When it came down from <unk> 63 to $7 80.
And the $176 million adjustment, we had on the OCI this quarter.
Impacted.
Most of it combined with our repurchase obviously on the under dividends OCI now represents approximately just over $3 a chair on tangible book value.
But as we have mentioned we believe this impact will reverse over time as we have the liquidity and we have the ability to hold these securities until maturity.
With that I would like to open the call for questions.
Yes.
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Our first question comes from Brett Robinson from Hovde Group. Your line is open. Please go ahead.
Hey, good morning, everyone.
Good morning.
Morning, Brad How're you wanted to.
I'm good thanks.
I wanted to first just ask about the commercial strength in originations maybe whatever additional color you could provide on the fantastic partnership and what that entails and what that might mean for loan growth going forward.
Gail I'll take it separately.
Yeah.
I think.
What were the other deep over the year, we've been discussing about the file and been building.
And there's a lot happening in the island in terms of even M&A activity.
Companies buying other companies new investors coming in.
So on private deals.
So on privatization deals public private partnerships.
Some hotels moving from one of them to the other.
So deal flow is very active and we continue to see new capital coming in so.
I think that value obviously for me.
<unk> is the primary source of it secondly.
Commercial activity continues construction activity continues.
I think we if we look at the first five months of the year. Some of the funds deployed were close to 900, mainly on <unk>. If you look at the public data and we believe by unnecessary five months. So that should reach four 2 billion. When we if we look at the remainder of the year. So so that is contributing we continue to see requests for nine months.
Supporting the nickel drive tours obviously.
US everywhere in the world things are delayed because of supply chain.
Materials don't Israeli came on time, so timing is always a consideration.
So we feel.
In our may might get in the U S, which is Florida.
The violence I was also very strong, Florida continued to see inflows.
Look at the public demographics.
Demand for office, which is not happening anywhere else is happening in Florida. So so obviously.
Companies moving their headquarters or refuse looking for homes. So so we think it's stable.
We're not talking about double digit growth, we're still being a little prudent growth.
And that's why we continue to support.
Remember last year, we also.
Third during the acquisition we also achieved.
Our selective re.
And all of the portfolio in certain cases, just to make sure it fits our risk profile targets.
Obviously that is SaaS.
That will happen in 'twenty, and 'twenty, one which definitely impacted.
Our volume in that.
So we feel optimistic about what we have at hand today on the commercial side secondly.
We have been working with this fintech for some time.
And we.
We just launched.
The small business lending, which is going to be supported by the clients very similar platform that we use for PPP loans, which was broadly used by clients.
Supported by.
A lot of good feedback from clients in terms of the cell therapies.
Self service capabilities, and and definitely that will that increase our capacity.
To to penetrate the small.
And in small business segment.
<unk>.
Pretty good in the Metro area based on that Brian .
Concentration but.
I think we believe we believe we have opportunities in the other regions of the islands. That's rolling out here on this rolling <unk>.
Okay that answered the question that's correct yes.
Helpful.
And then wanted to make sure I understood the guidance I think I heard 113.
And $114 million.
200, <unk> for the fourth quarter and expenses <unk> and then the efficiency ratio maybe to tick back up towards 50%.
Going forward or maybe for the back half of the year and given the additional NIM expansion it would seem like.
It would stay under 50 is there anything I'm missing with the balance sheet or the income that.
Makes that number move up a little there.
No.
Youre right.
<unk> expansion.
With the components of the expenses that are expect that it should take us somewhere closer to 50% maybe just under the 50%.
The just to clarify one thing the only component that on the on that guidance.
That volatility that we've seen on the Oreo.
<unk>, which has been positive obviously and we like it better.
That one I am trying to exclude because of and the expectation at some point was not there and we still see some opportunities in the third quarter.
To offset some of those cost.
Maybe not at the level of gains that we saw in the second quarter, but that would offset some expenses.
But clearly youre correct.
With the expectation of NIM expansion and those those expense levels, we feel that will be.
Just under the 50% or very close to win.
Okay.
And then maybe just one last one.
For me if you will.
Look.
Like the <unk>.
<unk> in the deck with the EAA and accident and tracking.
Now, it's a little higher than it was pre pandemic.
I'm curious if you guys feel like the economy is.
At this point better than pre pandemic.
What's your sense of the of our funds fall into the island kind of continuing to improve.
On a local market in Puerto Rico.
I think there are sectors that are better than <unk>.
Pandemic.
When you look at the construction sectors on those or benefit on that supply chain.
And suppliers and engineers on everything that is related to construction is more advance obviously.
The employment might get a stronger.
When you look at the unemployment, but also when you look at the workforce.
The numbers that we are reaching in terms of workforce in the islands and and obviously when you look at it when I say strong everybody's hiring still.
So obviously the impact of inflation in oil and.
We still see excess liquidity compared to average balances, which they are still over 30% on pre pandemic. So there is some excess liquidity there to support that should support and mitigate inflation, so but to date foundations I have to say look better than where we are.
And prevent them.
How long, they're going to remain or not is really the uncertainty how hard is to empower the inflation will continue to be the uncertainty, but today conditions when we look at.
Balances and even asset quality when the metrics.
We're showing today.
Our better than prevent limit.
Okay, Great appreciate all the color.
Our next question comes from Tim <unk> from Wells Fargo. Your line is open.
Hi, good morning, gentlemen.
Hi, good morning.
Maybe just starting on the funding side can you talk through the expectation for funding second half loan growth.
Should we see additional usage of the bond books in cash upon that growth or is the expectation that deposit growth resumes here in the back end of the year.
Well we.
It's a combination we are we have a high level of investment portfolio. At this point there is a normal cash flow component coming out of <unk>.
That.
Portfolio.
We believe it's going to be offsetting any any cash needs for the lending side.
The.
As Aurelio mentioned, we believe that our second half.
The deposit growth, it's going to be it's not going to be like we saw in 2021 early 2020.
<unk> seen some reductions already.
So movement to other resources, so thats part of what was reflected in the quarter.
But having having need for wholesale funding would be very limited at this point, we don't we don't foresee that based on current liquidity levels.
And the excess liquidity that we get every month from the from the investment portfolio. It's a function of how much ENSA being investment versus loans.
Ian.
Okay, and then it looks like a Florida government deposits had a nice quarter.
<unk>.
I guess, what's the outlook there is that is that.
The effort there to kind of self fund, Florida production on the loan side and then as you expect deposit betas to increase in the back of the year I'm just wondering what the driver of that expectation is because of the results. So far seen very strong and it doesn't seem that your competitor.
These are really pushing the envelope as far as deposit costs yet.
Well first let's clarify that the government deposit growth was really an important <unk> not in Florida.
Yes, just to make sure you saw that.
That's where we have the large.
Government business.
Florida, we have small government business.
<unk>.
We see that as a stable source.
Remember that.
What we have mentioned in the past there are some funds deposited here that are the typical operating funds from municipalities and so that we believe are going to be stable funding, but we do have some some.
Funding from from.
Some of the reconstruction activity that happens with the <unk> authority and so that those would be.
Sort of a more volatile depending on what kind of.
Thousands of the different projects they have on their way so government funding, it's going to be there it's stable I think that the.
Where does that I mentioned under the positive setup.
The market came down dramatically like it happened in the states that up after seeing the 75 basis points increase last month, an unexpected another one.
We are seeing the market options on treasuries and other other options competing there.
We do compete also with with credit unions.
So we foresee that some of that will put some pressure on on.
Interest rates.
There is a customer retention component that we have to be conscious of and customer relationships that we have that's why we see the the higher the fed moves.
Theyre more reaction, we're just going to start seeing from customers. So we feel it's reasonable to assume that <unk> will.
We will start moving in the market.
Based on what's happened over the.
Month, or so and what's going on it's expected to happen now at the end of this month.
Okay. Thank you for that clarification, and then just I guess lastly for me on credit.
Maybe just talk through a little bit about the tick up in auto delinquencies on the early stage.
Is that at all indicative of us kind of reaching the bottom here for how good credit has been and as you look at.
Your allowance ratio.
And I think you had.
Guided well that we're going to see a positive provision here in the second quarter, we saw positive progression here in the second quarter as we look at the allowance ratio here.
Assuming the environment doesn't change can we expect further reductions going forward or is this a level that you'd like to maintain.
Well the.
The first question you had we feel we're at a very low level.
<unk> of delinquencies in the market.
We reached the bottom maybe we have.
The market has been very stable for a while.
We've seen keep.
Keep in mind that some of the dollar increase also on the delinquency side, it's related to the portfolio size increase not necessarily percentage wise.
But but.
The provisioning and the reserves on the consumer side reflect the EBIT growth.
As I mentioned, but also reflects some expectations on deterioration that could happen on on the.
Unemployment rates in a couple of other key macro indicators for the consumer portfolios.
So assuming that nothing happened.
Yes, eventually maybe we don't need as much in reserves, but what we cannot assume that there won't be any impact related to to the inflation component on the market. That's why we.
Continued to include.
<unk>.
Environmental components and qualitative components as well as looking at it at some of the.
More stress economic scenarios as part of the calculation of our reserves to make sure that we're reflecting any any trends that the market might show going forward.
Great. Thank you for that color.
Our next question comes from Alex <unk> from Piper Sandler Your line is open.
Hey, good morning, guys.
Good morning, Alex.
I'm just wondering.
It's been a lot of sense mortgage banking has been a pretty big driver in our fee income and spent a lot of sense and sell all of the production grades being where they were over the last couple of years.
Now with rates kind of pushing about 5% I'm just wondering if the thought process around mortgage changes.
Potentially that could go from being a drag on overall balances.
It may be even flatter contributory.
In the next couple of quarters.
Yeah.
Have you seen this quarter you saw some positive trends on prepayments also on the portfolio.
And when we look at the activity being originated the reality.
Yes, when the conforming rates are so one.
<unk> to the portfolio rate that tends to happen.
It's happening in the recent months, so so I would not say.
In line to achieve growth in our mortgage portfolio, but.
But I think the contraction that we have experience on the portfolio should be reduced to be reduced.
Sure when one is a point that we're going to reach full.
Rachel therefore, prepayment repayments and prepayments on that portfolio.
But we can get back to you on that later.
Keep in mind, Alex that the overall originations that market originations of mortgages have gone down so.
So it's chip.
On the mix of what's being originated but it's also a lower level of originations. We don't have the level of refinancings, we saw.
Over the last couple of years with rates being so low so that's part of it.
In terms of not only the mix would be.
The overall level of originations in the market.
Okay. Thanks, and then just to be clear the tick up in the ACL and the consumer portfolio, that's not being driven by anything Youre, specifically seeing that's just trying to get ahead of some of the concerns in the market and maybe putting a little bit more way.
Otherwise good quarter or is that is that the right way to think about that.
Yes, we there.
If you look at the uptake it's basically.
Two components that we the reserve went up by about $6 million related on the consumer side related to growth.
And it went up our 3 million related to microeconomic.
Assumptions.
Other than that it's the normal movement, when depending on what gets repaid and what what complaint but.
Clearly, we havent seen anything other than project microeconomics that.
That are relevant in the portfolio.
Any any changes in projections of unemployment on the consumer side.
That moves the needle on the reserves.
Okay, and then just a final question for me.
I think it really you alluded to our projection of around $2 billion of federal money at the end of the year point onto the island.
Can you help us sort of connect the dots and sort of how that will actually impact loan growth or house essentially impact loan growth.
Thanks.
Okay.
Difficult co relation Blake just economic activity not only support our loan growth and support the economy itself is heading in eight months. They I think the right number the number that is public.
Five months, they have done a $160 million of disbursements.
And the goal is to reach the Wailea, which we think is going to happen.
So it just had HR support and the economy overall.
I got to say, how much that translated to a specific loan numbers, but.
For us the.
The expectation is that we're going to achieve growth in the commercial book through the remainder of the year.
Okay.
Okay, great. Thanks for taking my questions.
Thank you Alex.
Our next.
<unk> comes from Kelly Motta from <unk>. Your line is open. Please go ahead.
Hi, good morning. Thank you so much for the question.
Hi, Kevin Kelly.
Maybe turning to the balance sheet, you had a nice deployment.
Cash once again this quarter.
Just wondering any updated thoughts on what a normalized level of cash looks like at this point in the cycle and where you maybe.
<unk> taken yet given the puts and takes at the macro.
Thanks.
B.
Normal levels of cash will be what.
On a normalized scenario would be what we expect.
What would need only for purpose of reserve requirements other than that we're just leaving money on the table.
Clearly there was too much liquidity or investment options were not there. So we're keeping a much higher level.
What we would typically keep.
As you mentioned you saw a reduction from one quarter to the other.
With significant we came down from from one 7% to one three or so at the end of this quarter, probably that number normalized basis is going to be more on the $800 million than anything else.
Considering all components.
But it all depends on on the options that we have the right level and what we see in terms of the positive movement. So.
Keep in mind that some of the government deposits are collateralized put up but we don't we use the cash typically to move any needs.
It hasnt been much but we do keep some amounts associated with that as part of our liquidity components.
Got it.
It seems like Youre still running pretty high there.
And you mentioned, you expect deposit betas to kind of.
Pick up from here.
Fair to say that.
We're going to see some nice NIM expansion from here maybe.
Maybe at a slower rate than what we saw in the second quarter.
Is that a fair assumption.
Go ahead.
It is it is a fair assumption.
We would have and youre not assuming.
What I would say at the end, but to me the 75 basis points fed that also would put soma and remember that there was some some of the increases in June .
Reflect start reflecting in July .
So we definitely expect some some expansion in there.
Even with the financing.
Great.
Thank you so much for the questions I appreciate it.
Okay.
You have a follow up question from Robert John Your line is open. Please go ahead.
Hey, guys I just wanted to ask on the tax rate.
And what's a good number going forward just kind of given the movement in the past few quarters.
The I mean.
The tax the tax rate without Chinese because we have been.
Element and some strategies to in terms of the chips from taxable to exempt income on the investment side.
<unk> been doing that.
Overall overall, it's still with the growth in the portfolio remember that the loan portfolio grow.
That also vary it's going to be taxable components.
<unk>.
So.
The rate that we are now in that 30 overall overall effective because remember that in Puerto Rico, you are taxed by legal entity.
And depends on the chip of earnings between the subset that we have but that 32% to 33% should be more or less the average that we see for the rest of the year.
Okay.
And then wanted to follow up on the balance sheet in general and.
My presumption is we'll see.
Moreover, we saw in the third second quarter, and the third and fourth quarter, where you use liquidity to fund.
Loan growth and so maybe the balance sheet stays the same or maybe shrinks a little bit depending on deposits is that a fair assumption or do you think you'll actually growing the balance sheet.
No that is a fair assumption Bret.
Brett.
We're seeing it the same way.
Okay.
Great I appreciate the additional color.
Thanks.
This concludes our Q&A session and today's conference call.
Thank you for your participation you may now disconnect your lines.
Yes.
Okay.
Sure.
Sure.
Okay.
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Okay.
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