Q3 2022 First Bancorp Earnings Call
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Thank you for standing by and welcome to the first Bancorp three Q2022 financial results call. My name is Sam and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you'd like to ask a question. Please press star one on your telephone keypad at any time.
I'll now turn the call over to our host Ramon Rodriguez.
Corporate strategy Investor Relations Officer Ramon.
Thank you Sam good morning, everyone and thank you for joining first Bancorp's conference call and webcast to discuss the company's financial results for the third quarter of 2020 to join.
Joining you today from first Bancorp are Aurelio Aleman, President and Chief Executive Officer, and Orlando way to his 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 Companys business.
The company's actual results will could differ materially from the forward looking statements may 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.
If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at FPP Investor Dot Com at this time I'd like to turn the call over to our CEO Aurelio anymore.
Thank you I'm on good morning to everyone and thanks for joining our call today.
Before we discuss the highlight.
I'd like to provide an update regarding who had been feeling I see but when a warm lead market. During the later part of the quarter.
The storm caused flooding property that made mostly on the south also within parcels the islands.
It's way less power outages, and you know I will say minor businesses.
We were able to continue supporting our clients through the event by leveraging our deep talent.
These channels.
Gradually resuming Bengal duration with the following day.
Our headquarters on main buildings remain fully operational during the event and normally you are in the region.
Mr.
Most of the business environment and resume their ordinary course of business during the following week.
However.
Lighting, we provided certain payment deferral programs is lower clients earlier.
Yeah.
Okay.
I would like to take this opportunity to say all our colleagues for their dedication in response to lower client needs.
I'd encourage by the strength and resiliency show by all during this natural disaster.
Once again with him he'll do practice, our contingency plans.
Please let's move to slide four to discuss some of the highlights of the quarter.
During the quarter, we stay on course and are very pleased to report on all their strong quarter for our franchise.
We earned $74 6 million or <unk> 40 per share during the quarter.
And I think most importantly reached another record pretax pre provision income model.
One for me.
This was our sixth consecutive quarter, increasing in pre tax pre believes you meaningful.
Up 3% compared to the second quarter of 2022, and 18% when compared to the same quarter last year.
Net interest income grew by 6% linked quarter to <unk>, seven 9 million and.
And the margin expanded by 31 basis points to 431, Orlando will provide more detail on this later.
We recorded a provision of $15 8 million for the quarter, reflecting.
Literally to the AC portfolio, a lot of us mainly in consumer loans.
The slight deterioration in the long term outlook said that forecasted macroeconomic variables.
Asset quality continued to improve with nonperforming assets decreasing.
By $4 2 million to $143 3 million during the quarter.
The ratio now stands at 78 basis points.
Store labor market.
Very close monitoring of our portfolio trends as equality, obviously, we sustained very very very healthy levels of in hours.
Finally, our strong capital liquidity profiles. These enable us to continue executing our sterling capital.
<unk> plan.
And we have repurchased approximately five 4 million shares for $75 million in the third quarter.
And then we have repurchased approximately $12 5 million shares for approximately 175 million under the previously announced.
Julien 50 million adult repurchase program and year to date.
Including what we did in the first quarter, we have repurchased a total of $225 million due in 2020.
These results highlight our ability to achieve consistent performance.
<unk> value to our shareholders, while managing effectively the operating environment challenges.
Let's move towards less volume.
The margin dynamics continue to evolve in line with our work on the gold side can we talk about where we want to thank the portfolios.
Loan portfolio balances OLED non PPP loans grew by $112 million when compared to the second quarter.
Primarily driven by increases in consumer and commercial loans, partially offset by a decrease in residential.
Year to date loan portfolio will have to behave as expected with diluting Gainesville commercial and consumer.
While our eastern raised and reductions in residential mortgage.
Year to date commercial growth is about 4% and consumer is about 11%.
We expect to continue capitalizing on rising might get opportunities on the commercial construction uncle segment and market share.
During the upcoming quarters, obviously closely monitoring asset quality.
I have to say that the loan pipelines coming into the fourth quarter continue at healthy levels.
Core deposits at a lower amount on broker decreased by $530 million during the quarter, primarily driven by the hotels in Puerto Rico and Florida.
Positive market trends in Puerto Rico continued to gradually taper off a high balances in both the doors search for higher yielding deposit alternative I will say, particularly in the U S treasury market on other nonbanks deposit options.
However, our.
Okay.
Commercial clients in Puerto Rico still remain.
<unk> <unk> levels.
Please let's move to slide six.
To discuss some of the operating environment lately.
Yes.
Well the macro does in Puerto Rico continued to show good signs.
We continue to see broadband.
<unk> by stronger labor market and consumer confidence metrics.
Payroll employment ratio they could hide in August and was four 6% year over year.
The economic activity index, which is a bunch of it in any game delivered when we conditions maintain a growth trajectory and are raised at a $1. So an increase in July .
The same more last year.
Most importantly <unk>.
Nations.
I would expect it to be supported by the development of this active deployments deployment of the released projects.
In the upcoming years, which will help mitigate that.
Slowdown in the U S economy DVD.
A public data shows that the base of disaster relief funding spending continues to improve.
Reaching $1 3 billion during the first eight months of 2020.
This positive trend is critical for economic development in the islands.
It's important for where lending activity in that sector.
Our strategic objective of leveraging and it might get acquisition to improve our bread on scale in the markets. We opened it is paying off and allow us to continue investing in that Brian <unk>, who are delivering shareholder value.
We have been able to dilute betting database is enabling technologies that have allow us to process loans capture deposit to serve service platforms.
<unk> will continue experiencing increased adoption of the recently launched <unk>.
Mobile business retail banking and small business lending platforms retail banking MTV DVD continued to improve users are up six points over a percent year over year, and we continue to capture over 4% of deposit transactions through digital and social channels.
The Journal branch restaurant digital initiatives have been identifying and we'd be executed during the fourth quarter.
We continue to optimize our existing physical channel sales and distribution capabilities.
All these initiatives globally with our expense management discipline contribute to support.
One of the lowest efficiency ratios, among our industry, which dumps now close to 48%.
With that I will turn now the call.
To Orlando for more details on the financial highlights thanks tore.
Good morning, everyone.
You mentioned the results for the quarter were very strong.
We had a net income of $34 6 million, which is 40.
A chair.
Which compares.
With $74 7 million, which I want the same last quarter, but at 38, a share some of the impact.
Repurchases that have been achieved over the year.
Pretax pre provision however grew $3 6 million and now it stands at $122 4 million for the quarter.
What we saw in the quarter et cetera, we continue with a positive impact on interest income from the repricing on the loan side as well let's.
Say, a higher yield on cash on money market instruments that result from the increasing fed funds rate.
Also.
We had anticipated we have started to see some acceleration on deposit betas.
We each up led to increases in deposit costs.
With margin expansion as we will discuss a little bit later.
Again, that's already mentioned the provision for the quarter was $15 8 million.
Which compares with $10 million last quarter.
This increase in the provision reflects the growth of the consumer portfolio too.
A large extent.
If you look at our portfolio since December the consumer portfolios have grown 332 million.
For the third quarter consumer grew $113 million.
Without being repetitive again, the other component.
The deterioration we have seen on on the forecasted macroeconomic variables as we all know.
With the economic situation the world there have been some expectations of some recessionary impacts.
Once the termination Endo provision we continue to wait two scenarios that we have disclosed in the past.
<unk> language.
Down south downside economic scenarios to reflect.
What could be an economic impact.
In terms of the here again, the financial impact. So Aurelio mentioned was mostly mostly it was the south and southwest.
The credit impact on our commercial customer has been minimal.
For the consumer sector, we did reach a moratorium program as we did in the past not as spread out as.
As we did before.
So far under that program, we are entering two only $56 million deferral or expansion.
Meaning profile through through a couple of days ago.
And the Hurricane also resulted in our 600000 reduction in fee income.
400000, increasing expenses for the quarter.
Looking at net interest income.
It increased by $11 7 million.
From $196 million to almost $208 million in the third quarter.
Interest income grew $14 million.
While interest expense grew $2 3 million in the quarter.
On the commercial side interest income grew $9 million.
$8 million of that represents repricing or higher yields on new loan originations.
<unk>.
Hold that in.
The yield on the commercial portfolio growth growing 61 basis points in the quarter.
In the case of consumer loans interest income grew $4 million was mostly related to increase on an average balance of the portfolio on average grew $126 million in the quarter.
The average yield being mostly a fixed rate portfolio. The average yield on the consumer portfolio grew only 1%, which.
It's part of the new loan originations at higher rates.
Interest expense on interest bearing deposits grew $2 4 million or <unk>.
10 basis points increase.
Overall, our interest expense grew by the same on my own.
Since.
During the quarter, we had a 200 million <unk> bonds that mature in west rebate.
And that reduction offset the increasing cost we had on the junior subordinated debentures that are that are floating rate notes, so that offset one way or the other.
The average cost of total interest bearing liabilities grew 10 basis points in the quarter. Also also 10 basis points, which is up from 43 basis points last quarter to 53 basis points this quarter.
Margin increased 31 basis points from 4% to $4 31.
The improvement in the margin, it's a combination of the impact of the rates.
A little bit of a change in mix on the assets as cash balances that are lower yielding have decreased.
In terms of non interest income.
It came down $1 2 million during the quarter.
600000 of that is related to mortgage banking, resulting from the lower gains on mortgage sales in the secondary market.
So the level of originations of conforming mortgages that are sold in the market have come down.
But also we had 600000 impact on fees.
Basically all related to the here again.
It's like a little bit over $100 and associated with waive fees, we provided to customers on ATM on oil.
Type of transactions as well as our pipeline with those and in transactional fee income reduction on on on POF, Starmine merchant transactions, which.
Were affected by the impact of the hurricane.
In terms of expenses.
<unk> expenses for the quarter were under $15 2 million, which compares with $108 three which.
It's $6 nine mainly on higher than last quarter.
If we split this out a bit as we discussed during the second quarter call expenses in the second quarter had a benefit of $1 7 million from reversals that are.
Associated with resolution of matters that had been previously accrued.
If we were to exclude that.
So the Oreo gain.
Against that we had in the water expenses for the second quarter were one.
$11 5 million.
That would compare it to a $160 million this quarter also excluding the Oreo expenses.
When we had this call last quarter, we provided a guidance of that Steve made at our $2 million increase in expenses for the quarter the amount was.
Higher than we had originally brought into guidance a few things in there you are again again, it's over $400000.
300000 of that is related to some some donations that were made to nonprofit organizations.
The communities that were mostly affected by the hurricane.
We launched.
Our new brand marketing campaign.
That added to our $400000 more than anticipated.
The quarter had one extra payroll.
We had a renewal of the medical plan that came in much higher than we had anticipated before.
The electric electricity costs came in higher than we had so those were some of the <unk>.
<unk> affect that.
And they're all being higher than the guidance we had provided.
If we look at the fourth quarter and things have come in and out we expect that <unk> expenses for the fourth quarter.
Would be at the same rates.
$116 million range that we had this quarter.
<unk>.
The most recent estimate we had on expenses.
Looking at efficiency, how word even with the increase in expenses our efficiency ratio continues to be very low at 48, 5%.
In part also of course, driven by revenue increases.
We still estimate that we will be under the 50%.
Efficiency ratio for the end of the year.
Asset quality trends.
Looking at them continue to be very positive nonperforming assets decreased by $4 $2 million in the quarter $243 million.
Compared to a $1 4700 $47 million, we had last quarter.
And Thats also as Aurelio mentioned, the npa's or 78 basis points of assets.
Barry I'll turn on NPA, which generally includes.
One $6 million decrease in residential mortgage nonperforming $25 million in commercial in basically paydowns and payoffs of some non performing.
$3 million decrease in Oreo the only the only portfolios had went up.
The consumer side, it went up to $1 million.
There is there is a size component associated with that.
As youll see on the inflow inflow side went up $3 9 million, which was basically the same thing most of it was related on the consumer portfolio.
Early delinquency in the quarter, which is defined as 30 to 89 days did go up by $20 million, but there was a significant impact.
On the portfolio from from the payment streams that were affected on the second half of September .
A large chunk of <unk>.
Of the cycles on some of the auto portfolios mature node.
Second half will demand of each month, so that affected the numbers, we have seen some improvement on that coming down now into October .
So we deemed us us being temporary most of it.
Net charge off for the quarter were 31 basis points, which is up from 21 basis points last quarter.
You might remember that we did have $1 2 million in recoveries and commercial portfolios.
Last quarter that lowered the charge off ratios.
Looking at the <unk>.
Once on the second quarter ended up at $271 million, which is 7 million higher than last quarter.
The allowance on just loans and finance leases.
What's the $158 million, which is $6 million higher than last quarter.
Reflecting the movement in the portfolio.
The deterioration on the long term outlook of the of the <unk>.
Economic variables.
The ratio of the allowance.
228 as of the end of the quarter compared to 225% of the animal.
The second quarter.
On the capital front. So as you mentioned, we continue with the execution of our capital plan.
We have repurchased 15 million $15 9 million shares this year for $225 million.
Which has been basically offset by the $232 million in earnings we've had year to date.
Capital reductions have mostly come from repurchases and the $66 million or so dividends, we paid over the first nine months.
But capital ratios continue to be very strong.
You can see on the chart.
Tier one common ratio came down from 17 from 17 to $16 seven so it is only three basis points.
While the leverage ratio went up from $10 to obtain 10, 4%. So both both very healthy rates.
Tangible book value per chair did come back come down.
Decreased from $7 80 to 645 related to the $271 million each channel OCI adjustments.
From the decrease in the fair value of the securities.
Our tangible common equity ratio.
At the end of the quarter, but as we have mentioned in the past. We believe this is going to reverse over time since we have the intent.
Also based on the liquidity, we have the ability to hold securities through.
Maturity.
You probably have seen on the number of security portfolio has not been growing and we have monthly repayment somewhere between 40 and $50 million, which lowered the portfolio and obviously the or the impact from from OCI adjustments.
If we were to exclude the OCI on a on a non-GAAP basis, obviously tangible book value per share would be $11 11.
And the tangible common equity ratio would be $10, 75%.
With that I would like to open the call for questions.
Certainly we will now begin the Q&A session, if you'd like to ask a question you May press star one on your telephone keypad and if for any reason you'd like to remove that question you May press star two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question today comes from the line of team of Brasilia with Wells Fargo tumor. Your line is now open.
Hi, good morning, everyone.
Good morning, Brian tumor.
Maybe looking at the balance sheet first, particularly on the funding side, how should we be thinking about future asset growth and how that's funded.
68% loan to deposit ratio.
33, plus percent securities to assets you guys have plenty of on balance sheet liquidity should we expect you guys to continue using some of that liquidity to fund future loan growth or is the expectation here that loan growth going forward is going to be more or less funded by deposits.
Yes, as Orlando mentioned integrated portfolio.
It is bringing about 40 to 50 million liquidity four months, we expect to.
To grow that at least move that user liquidity to continue growing the loan portfolio and that's our plan.
Net net we expect commercial demand due to grow consumer to continue to grow.
The slight reduction if you look at the last quarter on the RAC side the contractual trends.
Households will be reduced because obviously repayment prepayments on that portfolio and refinancing activities lowered.
Okay, and then I guess on the deposit side, just given some of the broader pressures and you made the comment that.
That's some of the deposits are tapering off in Puerto Rico, and customers are going into either treasuries or other products.
Is the expectation there that we should have silicones, then you're seeing some modest deposit reductions until theres, a broader point of stability or do you think we're getting closer to a bottom here on the balance sheet stability size at least as far as deposit Scott.
Yes to be honest is the most difficult.
Trying to predict.
When you look at it from the average balance perspective, we still are above pre pandemic.
And that's remained four.
And they're still inflow of funds coming in.
On the other hand, when you look at large depositors, yes, we're competing with non banks I think we expect.
Slight reduction of the portfolio.
<unk> continued to normalize obviously, our ability to grow market share.
And our objective of growing market share. It's also presence so what we're trying to meet the air and offsets.
Some of that some of that.
Average violent construction that should happen.
We're bringing some.
Some of them don't make assure into it.
But I think the net net we should expect some of these UN contraction.
Okay.
And then maybe just looking at the Puerto Rican consumer would love to get your thoughts around the <unk>.
More broadly the Puerto Rican consumer and then just the amount of consumer growth that you continue to experience.
What's your appetite for consumer growth in 'twenty three as we're heading into this period of.
More broad kind of economic uncertainty here on the mainland at least and then as that pertains to actual asset quality I mean, we're seeing some normalization of credit it seems like within the consumer portfolio, just maybe talk about what youre seeing there as far as credit normalizing and what that could mean for the allowance ratio.
Well.
The behavior of the portfolio from a delinquency level across the consumer sector I would say personal loans and auto are still below pre pandemic levels.
A credit card.
Thanks levels, that's why we that what we're seeing.
Okay.
The consumer and Wausau was not using during 2021.
The second quarter nickel tumor was not necessarily using.
The additional liquidity.
<unk>.
And these side obviously the auto lending continues very strong and we link that to the to the reduction in unemployment.
People need a cloud in Puerto Rico, there is no volatile expectation and if you're working at par.
So we expect sales to continue healthy.
The year, starting out of 110 120000 units of new vehicles.
We expect that trend to continue in his early increase but at that level.
We have today about 21% market share and we continue to increase share. So why not 25 or 30, it doesn't happen overnight, but we expect to continue our.
Consistent growth over the last three years in that segment on.
On the consumer lending side.
Our more conservative until the maximum loan amount.
On our credit parameters, we have been able to achieve.
Some growth in that sector over the last most recent quarters.
The consumer is back.
The consumer loans.
And credit card activity continue healthy.
It's not not significant growth.
Some positive trends in the portfolio.
Menses.
Models also include our forecasting.
Some of the macro trends already embedded in the model. So so yes, we could expect some slight increase in delinquencies, while we still believe are going to remain.
So with dynamic levels because of.
The health of the consumer here.
When compared to what was the economy before the.
Today's economy minimum salaries are better.
There is more activity there is less on employment.
All of that should result in having a very quality consumer portfolio.
Later cycle the economic stress.
Great. Thank you for the color I'll step back.
Thank you for your question.
The next question comes from the line of Alex toward all with Piper Sandler.
Alex Your line is now open.
Hey, good morning.
Hey, Alex good morning.
Yes.
I wanted to start on the unfunded construction loan commitments I think of that the increase was $57 million during the quarter. I was wondering if you can give us the total amount of unfunded construction loans, that's right now on the balance sheet or I guess off the balance sheet.
Let me, let me say with other players.
I don't I don't have it here, Alex I'm sorry.
I mean I get that.
Yeah.
Okay, and we'll make sure we color around that for you on the on the on their Q. If not you can have that information.
Okay, I mean, when I look at the unfunded construction loan commitments are those.
Did you say that those are somehow associated with the hurricane relief some of the projects.
Part of the some of the government programs or is this separate building activity.
And just kind of where are we in terms of.
Some of these projects I know that there is money that's waiting to be dispersed on the islands <unk> obligation where it hasnt.
Just when you think about the construction flows over the next couple of quarters.
Is that is that growing unfunded commitment indicative that maybe some of these construction projects are picking up right now.
Yes.
The majority is not related to activity.
It is related to private commercial resi.
Resi construction some of it I think is pretty good distributed.
We have some hotels that are actually Theres, one hotel that we will spending completion after hurricane Maria So finally, they got settled with insurers.
There is another hotel that was purchase.
By new investors and there is money coming in to improve to improve the modernized facilities. So it relates to industrial and commercial activity Theres warehouse.
So its pretty well distributed in different.
And different lengths of the portfolio.
<unk>.
I think a very limited numbers related to there is some.
Credit lines related to contractors that are providing services to the government.
And so while ladies there too.
But I will say, but we'll disclose the specific number.
When we when we get when we disclose that.
Okay.
Then one of your competitors a couple of days ago alluded to just excess liquidity unbound on customer balance sheets, both the commercial and.
Consumer as sort of a hindrance to loan growth right now just customers are very healthy and don't need.
Loans would you agree with that sentiment is that are you seeing similar.
I guess resistance or lack of appetite for some of these loans are for loan growth to continue.
We I have to say, we are coming into the quarter, we have what I consider healthy pipeline some of it.
Two weeks of the quarter will disrupted and so one of the closest leading happened.
Now coming into the fourth quarter, they are happening so because of the disruption of the storm.
The.
I have to say that while we have at hand to today for the quarters is what I consider a healthy pipeline.
In both the commercial and the consumer side.
Okay, that's great color. Thanks.
And then as you think about the capital return strategy and just given the run up in the stock price recently, which is obviously great.
How do you think about the buyback.
When you weigh that against obviously still very elevated levels of tier one common capital versus where the shares are trading relative to tangible book value.
Every every.
Something that we it's been clear in our execution of the buyback is that we keep ourselves the optionality.
We don't do ASR, we havent done Asr's, we have executed on a quarter by quarter basis.
Taken into consideration.
Internal matters on external matters market conditions.
As we move on into this this past August .
Lee the better we can execute at a better rate than we have.
Okay.
We assess that every quarter, we did 50 million in the first quarter of 100 million in the second quarter.
$75 million this past quarter, and we're going through that process right right away. So theres still assume as you well know drove a $175 million approved two to execute so obviously micro conditions are important.
Use of capital.
Try to be broad and dig.
Taking into consideration both the macro on.
Not only the trading level of the shares.
We're going through that exercise right now, but we have all the optionality over time.
Right now when you think about the trading level of the shares are you thinking about it relative to the stated tangible book value or relative to the tangible book value excluding the OCI.
We tend to look at us.
As compared to the excluding the OCI.
Yes.
Okay, Great and then just final question for me just.
Thank you mentioned in the press release that cash and liquidity is 18, 6%, which is obviously well lower than total securities portfolio.
We can see what actual cashes on the balance sheet can you just talk a little bit about the liquidity position that's.
I guess not straight cash and not necessarily long term just so we can make sure that alright, just get a sense for your ability to use some of that for funding balance sheet growth.
Our loan growth I guess over the next several quarters.
That number would make makes it amit the cash.
We have an on hand in the institution for operation.
That we have at the fed.
Plus the securities at fair value that are available to be pledge, if we wanted to place them.
That's what's in there the combination of the components.
As a percentage of the total.
Our balance sheet.
Other assets.
And on top of that obviously, we do have the federal home loan bank lines, which is the second major.
But wholesale kind of funding that we use that data.
That eats up a level, we have deposited in the era of about $1 billion or slightly under that.
That we could use for funding. So that's that's in there and obviously you know that.
There are always other sources that can be top 10, but we don't we don't see that being a need now so.
So those are those are the functions whats included on that liquidity component.
The EPS line, it's not part of the 18% though.
It's only the Qiagen securities that would be on top of that.
That adds about.
What 5% or so more a little bit over 5% of assets.
Yeah.
Okay, and I think you said earlier that there's 40% to $50 million of cash flows from the securities portfolio on a monthly basis is that correct.
That is correct.
Normal.
Repayment of the portfolio.
Averaging in that range $40 million to $50 million.
Okay perfect alright, thanks for taking my questions.
Remember the duration on our portfolio at below four.
So it's not alone long.
Term portfolio.
Okay.
That's helpful. Thank you.
Thank you Alex.
The next question comes from the line of Kelly Motta with key BW Kelly. Your line is now open.
Hi, good morning. Thank you so much for the question.
Good morning, Gary.
Thanks.
So the funding.
Your deposit beta was pretty low there.
Im just wondering if you could provide some color on maybe the kind of core.
Non government deposit base versus.
The public funds.
Imagine the public funds.
Q1 hundred percent beta, but just wanted some clarity around that to better understand the different pieces.
The pace and data.
Okay.
Well garmin deposits.
It's about a $2 billion in deposits.
The beta is not quite 100%, but clearly it's much higher than a typical account.
So it's been moving most of the impact what's happening in the latter part of the quarter on going into the fourth quarter.
The other the other accounts up you have to split the regular savings.
Account, so small balances the beta us are less than 10%.
The E.
E yielding kind of accounts betas could be somewhere between 30% and 40%.
So it all depends on the.
The combination.
I'd also mentioned, we've seen some movement into into treasuries.
That is part of the.
What's happening out there.
The yields are pretty high there so we don't necessarily compete in there.
So thats a combination we obviously as rates have continued to come out. There is also a lot on all this process. So we're continuing to see some acceleration of Adas.
For the third quarter as compared to the second.
In the fourth quarter, we'll see that saw more acceleration of debates.
Got it and then maybe.
On the loan side and repricing there.
Like loan yields ticked up 31 basis points can you just remind us the percentage of the book that.
So I would imagine youre, probably pretty pretty much out of Florida, right now, but any consideration for the repricing of the loan.
Buck.
Going forward, given where we are in the rate cycle.
Yes, we have.
58% of the commercial portfolio that floats.
It's about 15% its prime.
And the other it's either LIBOR or or or so forth.
And <unk>.
Mostly three months LIBOR, so far but there is also one month and some a little bit there here and there on treasuries.
So what you have seen in the numbers.
If you take the September .
Rate hike.
Obviously prime loans would reprice in September but it was only a part of the month impact.
The the most recent repricing components associated with LIBOR, and so forth, especially under three months.
We did not see that repricing until October and most of those cases do reprice at the beginning of each quarter.
And obviously any future repricing.
Rate hikes.
Like for example.
The expected rate hike for November we're expecting immediate impact on prime base loans.
Sure.
LIBOR one month LIBOR, one month software based loans, we'll see some impact in the quarter. The three months will probably won't see the impact until the following quarter.
But that is a combination I believe there is.
I believe no I'm sure on the release, we included that breakdown Kelly. So you can see what's the breakdown on the on the LIBOR versus.
LIBOR also forbearance that Brian .
Got it I will take that out I will step back now thank you.
Okay.
Thank you Kelly.
We have no further questions waiting at this time, so as a final reminder to ask a question. It is star one and we have a follow up from Alex toward all with Piper Sandler Alex Your line is now open.
Yes, just one follow up question on expenses I think in the slide deck. It says that the efficiency ratio should trend towards 50% I think in the fourth quarter. Then you alluded to the efficiency ratio being a little bit below 50% in the fourth quarter. So I'm just wondering if that 50% guidance is that more of a 2023 or so how should we think about efficiency ratio.
And sort of expense trends as we head into next year.
Yes.
I wouldn't say full 'twenty, three but clearly Alex with <unk>.
Revenue component, so I know how the net interest income has grown because of the re pricing, we don't foresee expenses growing that fast to go to.
One point in time, you'll remember we had spoken about arena on a 52% expectation based on current numbers.
But we don't see that in the near term based on on the expense we're forecasting on the on the revenue growth. So that combination would keep us in that 50% level.
The next two or three quarters, yes.
Yes.
Glad defined purpose.
Alex.
It should be below 52, the year to this year, yes. This year, yes, so definitely yes.
Okay.
And then the expense.
Obviously, there is inflation and other things you can't predict heading into next year.
But the expectation is that a rate hikes continue that will impact the revenue expenses, you kind of a budget in mind for next year that really doesn't depend on what rate hikes, we get over the next couple of months is that correct.
No no. It's early but we are forecasting though.
The fact that services are coming in at higher rates.
We are seeing some of the renewals of our lease contracts.
Being a bit higher so all of those things are affecting some of the expense components.
And keep in mind that we still would like to cut down a bit on the on the vacancy factor that we have still running a bit higher than what we'd like to run.
Okay.
And then just to kind of tie it all together on the NIM.
Obviously, you have the 42%.
<unk> of.
Commercial loans that are tied to LIBOR that don't reset until October and then the impact from further rate hikes in new loans coming on higher so there's clearly a lot of momentum behind net.
Interest income and then expenses have been moving higher but if you tie it altogether. The NIM, we should have at least a couple more quarters of NIM expansion I would think.
As we head into the middle of 2023, I'm, just curious how youre thinking about it and if you have any other color that you want to project upon us.
I agree with your statement.
However, just to.
31 basis points pickup was solid.
We won't see that same level of pick up on margin, but we are expecting some margin expansion definitely with the expectation on rates.
Okay.
Remember that would be 42, just to clarify one more thing Alex the 42% does include some one month LIBOR or one month total loans that they reprice before before the quarter.
But the other ones. They have three months are the ones that would require a repriced at the beginning of each quarter.
Okay.
Thank you for taking my follow ups.
Thank you Alex.
We have a follow up from Kelly Motta with <unk> Kelly.
Hi.
Thanks again for the follow up.
Just.
A minor housekeeping item.
These were slightly lower.
Due to hurricane Fiona.
Imagine that that would rebound in four Q with.
How quickly you guys got the branches up and running the next day.
You could provide any commentary there that that would be helpful.
We missed the first part of the question or what have you said on the hurricane.
Oh.
All of our team.
Yes, Okay, yes.
Oh, Yeah definitely we obviously was the wave component.
Obviously, it's not happening.
Now and also its a transaction related.
Based on its come back to normal we see higher transactions.
So we definitely will see that pick up on the fourth quarter.
Got it thanks for taking the follow up.
Thank you. Thank you. Thank you Kelly.
We have no further questions waiting at this time, so that concludes our Q&A session as well as the first Bancorp <unk> 2022 financial results call. Thank you all for your participation you may now disconnect your lines.
Thank you.
Okay.
Yes.
Okay.
Okay.
Okay.