Q4 2022 First Bancorp Earnings Call

Speaker 2: Good morning. Thank you for attending today's first bank for for Q2 022 financial results conference call. My name is Alexis and I will be your moderator for today's call.

Speaker 3: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

Speaker 4: If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker 5: I would now like to pass the conference over to the Corporate Strategies and investor relations officer Ramon Rodriguez. You may proceed.

Speaker 6: Thank you, Alexis. Good morning, everyone, and thank you for joining First Bank Corp's conference calling webcast to discuss the company's financial results for the fourth quarter and full year 2022.

Speaker 7: Joining you today from First Bank Corp are Aurelio Aleman, President and Chief Executive Officer, and Orlando Verghez, Executive Vice President and Chief Financial Officer.

Speaker 8: 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 the important factors described.

Speaker 9: and the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the call.

Speaker 10: If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fppinvestor.com. At this time, I'd like to turn the call over to our CEO , Aurelio Reimann.

Speaker 11: Thanks, Vermont. Good morning to everyone and thanks for joining our NSCOL today.

Speaker 12: Please turn to page four to discuss the highlights over the quarter. We close out by offering a solid return asset of 158%. We earned 73.2 million or 40 cents per share in net income, achieved 122.2 million in pre-tax to push our income

Speaker 13: and reach an efficiency ratio of 48%, even lower than the private water.

Speaker 14: The margin expanded by 6x6 points, while on the other hand, the interest income decreased by 2.3 million.

Speaker 15: primarily related to an increase in the interest expense portion.

Speaker 16: Stable credit trends continue, supporting asset quality improvement with non-performing asset decreasing by 14.1 million to 129.2, which is a decade low at 69x6 points of total assets.

Speaker 17: Also, good news from the early delinquency side, which also improved during the quarter and still below pre-pandemic levels.

Speaker 18: In terms of capital deployment, we continue our plan. During the fourth quarter, we repurchased 3.5 million shares of common stock for the total purchase prior to 50 million and paid 22 million in common stock dividends.

Speaker 19: Our consistent energy generation capacity, discipline and space management have definitely allowed us to continue returning capital while allocating resources to organically grow the planet.

Speaker 20: Let's move on to the balance sheet page 5 to discuss long and deposit trends.

Speaker 21: On the asset side, total loan and leases grew by $254 million.

Speaker 22: Now the portfolio stands at $11.6 billion.

Speaker 23: during the quarter. And this really happened across all business segments, commercial, consumer, and actually residential.

Speaker 24: This was actually our strongest quarter in terms of long portfolio performance.

Speaker 25: Excluding PPP loans, which are almost finished now, commercial and construction grew by 141 million on 3% link water.

Speaker 26: Total originations, including renewals and credit card and productivity was very healthy at 1.4 billion of 16% versus the private quarter.

Speaker 27: That is our priority, deploy capital to achieve profitable long growth and capture additional market share across all the lending segments. It's really the core principle of our plan and we're encouraged by the trends that we see in the main market and also by the pipelines that we have today for 2023.

Speaker 28: In line with industry trends, quarter deposits

Speaker 29: decreased by 250 million or 2.3% during the quarter, which was actually slightly better than the local market for the quarter.

Speaker 30: As expected, we continue to see excess liquidity gradually tapering off within household balance sheets. However, average deposit balances for both retail and commercial customers remain above pre-pandemic levels. We continue to see excess liquidity gradually tapering off within household balance sheets

Speaker 31: We are focused on leveraging our expanded sales, distribution channels and data channels.

Speaker 32: to grow our market share on the deposit market and the products and services related to it.

That said, liquidity levels remain high with a ratio of cash plus liquid securities to total assets above 19% still.

Please let's move to page 6 to discuss the highlights of the full year.

You know, we're really very proud of the work that the team performed during 2022. Over the course of 2022, the teams were very hard to deliver outstanding results for the franchise.

We raised the organic loan growth of $762 million when we excluded PPP loans and the strategic reduction of residential mortgage, earned $305 million in net income and achieved a record pre-tax pre-provision income of $475.3 million, which is up 21% when compared to 2021.

and reach a decade low, not performing as a ratio of 0.69%.

In terms of the franchise, we continue our investments in people, technology, process improvement. We made great progress by moving forward our only channel, our strategy.

with the investment in digital self-service platforms to optimize the distribution capabilities of products.

When we look at some of the metrics, we continue to improve digital engagement, retail banking registration, we're up 4% during the quarter, 17% during the year.

adoption of our newly launched business digital banking applications continue to increase. Our new business digital lending functionality has improved our penetration to small and medium business and SBA segments.

And also we continue to capture over 40% of all deposit.

through the established channels.

All these milestones have been achieved within the context of a more efficient traditional branch network.

During 2022, we also consolidated five additional branches.

including two during the fourth quarter.

Moreover, our efficiency ratio reached a historic low of 48.3 during the year.

Highlighting our ability to execute ongoing capital investments in technology, improving digital channels, best-in-class talent, all without compromising the operating leverage of the organization.

Definitely, this result translated into one of our best performing years on record for the franchise while strongly supporting our communities, our colleagues and returning approximately $363 million or 119% of 22 earnings to our shareholders.

to both common stock buybacks and the payment of a very competitive common dividend.

Our strong capital position enables us to continue delivering value to our shareholders while at the same time providing ample loss absorption capacity in the event of an economic eh

Please let's move to page 7 to discuss some highlights on the outlook of our macroeconomic environment.

Definitely, you know, global expectations point to our economic slowdown in the US.

But we remain cautiously optimistic on economic conditions in our main market in Puerto Rico. Labor market performance continues to sustain and over trend. Payload employment reaching a decade's height in November 2022 of 4% year-over-year. And the economic activity index, our monthly indicator that tracks the economy closely rose 7% in the beginning of this year's sort of moment.

phones still pending to be dispersed.

Over 45 billion in undispersed, obligated funds have been earmarked to support broad-based economic development and rebuilding initiatives.

designed to improve the island infrastructure and overall capital stock.

Public data show that the experiment reached 3.2 billion during the 11-month period ending in November .

with this actually 96% above what was registered in 2021.

The rollout of this font is expected to gradually increase.

over the next decade with the most recent estimates reflecting approximately 5 billion are the estimates for 2023. That would be great.

The title is Government of Defense coupled with the Government Improvement Fiscal Position.

And focus on economic development is really what is driving the tailwinds that we're seeing.

Finally, and most importantly, this year we commemorate our 75th anniversary for this.

institution.

Proud of our people and all that we have accomplished over this period, and look forward to many more years of collaborating, supporting our clients and the communities, and growing the franchise. We do have multiple initiatives to celebrate this accomplishment and show our gratitude to the communities, employees, customers.

I will now turn the call to Orlando to go into more detail on the financials.

Thanks to all for your support.

ch out earlier and good morning everyone. So earlier I mentioned that income for the quarter which.

$23.2 million. That compares with $74.6 million last quarter. Our earnings per share on the quarter were 40 cents, which is the same as we had last quarter.

What we saw in the quarter is a benefit on interest income from the increase associated with the upward repricing of variable rate loans.

along with the higher average balances in the loan portfolios for the quarter. But as anticipated we have also continued to see an acceleration on deposit betas which is driving deposit costs higher.

In addition, we did increase the level of hotel funding in the quarter, which combined with the increase in the positive ultimately resulted in a reduction in net interest income.

Deprivation for credit losses in the quarter was 15.7 million, which is basically the same that we had last quarter.

But our allowance for credit losses increased by $2.5 million, and I will touch upon that a little bit later.

Just to mention, for allowance, we continue to use two scenarios. We weight them, a baseline scenario and a downside economic estimate.

In terms of net interest income, which as you all know is a challenge this time with interest rate movement.

The net interest income was down 2.3 million from 207.9 million in the third quarter to 205.6 million this quarter. Interest income was up $11 million but interest expense grew by 13 million.

An interest income, commercial loan interest income grew 8.2 million. 8 million resulted from repricing during the quarter. And we also had about 1.1 million associated with higher loan balances.

But on the other hand, we had a 20 million reduction in average balance on PPP loans, which resulted in a reduction of 1.3 million on interest income on loans.

The yield on the commercial and construction loans grew by 63 basis points in the quarter.

In the case of the consumer portfolio, interest income grew by 3.7 million, mostly related to the increase of average balances. We had 111 million increase in average balances.

The yield on this portfolio grew 11 basis points. As you know, that's basically a fixed portfolio, so yield improvement comes in on new pricing on your originations.

On interest expense,

Just looking at the past, the interest expense grew 11 million for 45 basis points increase.

from 37 basis points we had last quarter to 82 basis points this quarter.

Approximately 60% of this increase in interest expense was related to public fund Theakers raised the defectiveUTX Yeah.

The deposit betas for the quarter for the total portfolio was approximately 32%.

Core deposits was about 18%, but this increase in betas was mostly driven by the betas on public deposits, which was about 75% for the quarter.

We do expect that betas on public deposits to remain high. And these rates obviously are gonna move up or down depending on where the market is moving.

In addition, in the quarter we did have a 2 million increase in cost of borrowings.

$700,000 relates to reprising of floating-rate debentures.

And the other 1.4 million, it's basically increased on the size of the borrowing portfolio, FHLB advances and repos.

Margin increased six basis points in the quarter from 431 to 437.

change with primarily changing asset mix.

That's the average balance of cash and investment securities, which are lower yielding, decreased by $600 million, while loans increase by $146 million for the quarter.

Looking forward, we see interest income growing from the re-pricing of loans that will happen during the year and from loan growth.

For example, if you look at balances at the end of the year, loans were 187 million higher than the average balances for the quarter, so that should give us a pickup in the first quarter on interest income. We also have approximately $830 million in commercial loans.

normalization later in the year based on the expectation that rates will start to come down towards the middle of the year.

If we just look at our current balance sheet structure, our expectation is that net interest income for the next couple of quarters should remain at close to current levels with improvements in net interest income coming from future growth in the long portfolios.

In terms of non-interest income, it remained relatively similar to last quarter. We had improvements in credit and debit card transaction fee based on seasonality.

but that was offset by lower mortgage banking income. We also, during the quarter, we also reversed about $700,000 of previously recognized fees on insufficient funds as part of some changes on fee structure that are being implemented just towards the end of the year.

In terms of expenses for the current year,

112.9 million, which compared to 115.2 million in the third quarter.

2.3 million degrees.

The decrease primarily reflects a one and a half million increase in net gains on oreo operations.

If excluding OREO expenses for the quarter were $115.5 million, which compared to $116.3 million last quarter, also excluding the OREO impact.

This reduction includes 700,000 reduction in occupancy, mainly energy costs.

and 700,000 decreasing payroll expenses as all bonus approvals and incentives were finalized based on results. And I hope the expansion becomes even straighter nor more over the return of the smarter companies

These reductions were partly offset by some increase, it's a 500,000 increase in business promotion.

sponsorship and public relation activities that we had during the quarter.

The expenses in the quarter were very much in line with our estimates of 115 to 116 million, excluding Oreo, obviously.

And our efficiency ratio continues to be very low at 48%.

Looking at the first quarter, we do expect some increases in expenses. Payroll taxes go up in the first quarter as all limits are reset. That increases payroll expenses by a good clip in the first quarter.

Also, during the quarter, at the end of the year, we have seen significant increases or some increases in contract renewals with inflation, some of the renewals are coming up. There are several technology improvement projects that we have.

underway that are picking up speed in this quarter.

Based on this, we exclude Oreo expenses.

We believe expenses for the quarter, for the first couple of quarters should be closer to the 120 million range.

In terms of asset quality, our earlier made reference, we continue with a very stable asset quality.

Non-performing decreased 14 million in the quarter. This is 129 million, which is 69 basis points of assets.

The reduction included 9.3 million non-accrual commercial loan reductions.

5 million loans that was restored to a global status and we also had a 7 million, that's what drove mostly the reduction in the commercial side. And we had a 7 million reduction in Oreo properties.

based on increasing sales of repossessed residential properties in the Puerto Rico market.

In flows for the quarter increased 3.8 million to 24 million, mostly consumer portfolio that were 2.6 million based on size.

Early delinquency, again defined as 30 to 89 days continues.

to be good, decreased by 9 million in the quarter with productions across all portfolios basically.

In terms of net charge-offs for the quarter, we're 13 million, which is 47 million.

six basis points of loans compared to 31 basis points last quarter, mostly related to a consumer portfolio. We also had a $1.7 million charge-off that we took in the fourth quarter on the sale of an adversely classified commercial loan participation in the quarter.

Consumer loan charge-offs were 144 basis points of loans in the quarter and 107 basis points for the year. These figures are significantly lower than pre-pandemic levels.

as you can see on prior filings.

The allowance for credit losses at the end of 2022 was $273 million, which is $2.5 million higher than the third quarter. And it's about $2.5 million lower than the third quarter.

Higher than the third quarter and 7 million lower from last year.

My, I'm.

Sorry about that.

The ACL on just loans was $260 million, which is $2.6 million higher than last quarter.

The ACL reflects the increase in the portfolios we had in the quarter as well as some less favorable outlook that we have on the models for several microeconomic components.

The ratio of the allowance for credit losses on loans and finance leases to total loans held for investment was 2.25% as of the end of the year compared to 2.28 on the third quarter.

On the capital front, just state what Aurelio mentioned already, we continue with the execution of the plan.

We repurchase during the year 19.4 million chairs for 275 million.

and we pay during the year $88 million in dividends.

Our capital ratios continue to be very strong. Again, basically a small reduction in tier 1 and an improvement in the leverage ratio.

Tangible value per common share increase from $646 to $693 in the fourth quarter related to $60 million or so improvement in the other comprehensive loss adjustment.

as the fair value of the investment portfolio improved in the quarter.

Our tangible common equity ratio stands at 681 compared to 655 last quarter.

If we were to adjust for the OCI impact, non-GAAP tangible book value per share would be about 2.30 and tangible common equity ratio would be approximately 10.6%.

So those are strong numbers. And again, as we have mentioned in the past, we...

We believe this impact is temporary since we do have the ability to hold the securities through the end of the maturity process.

Securities continue at similar pace. We have approximately 40 to 50 million cash flow coming from the investment portfolio. So we will continue to see some of that cash flow redeployed to the lending side or compensating for funding needs. We will continue to see some of that cash flow redeployed to the lending side or compensating for funding needs.

With that, I would like to open the call for questions.

Absolutely. If you would like to ask a question, please press star followed by 1 on your telephone keypad.

If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1.

As a reminder, if you are using your speakerphone, please remember to pick up your handset before asking your question.

The first question comes from the line of Timur Bazilir with Wells Fargo. You may proceed.

Hi, good morning. Thanks for the question. I wanted to follow up on the NII guidance just to make sure I got it clear. Did you say that you're expecting some level of pressure here in the near term but for it to remain your current levels?

Yes, there will be some pressure still on deposit pricing.

And that's going to offset some of the impact from loan growth or loan already on the portfolio and re-pricing of loans already in the portfolio. So with those two components, we're expecting net interest income to be sort of similar to this quarter.

And then just looking again at the balance sheet, in the third quarter, security cash flows were used to fund deposit outflows and some loan growth. In the fourth quarter, you opted to go with borrowing.

and assets actually increased for the first time in over a year, how should we think about the funding of future deposit outflows to the extent that there's any and then the funding of 2023 loan growth? Are you gonna be looking to lean on borrowings a little bit more heavily in support of the balance sheet or should we still expect?

for funding growth and all the deposit implications.

During the fourth quarter, we lost the busses at a higher clip than the 150 million and we did grow the loan portfolio so we ended up taking some additional funding.

Clearly, it is a function of what happens on those two components, how much we originate based on the pipeline, we feel strong about it, and the trends in deposits going forward, which have been a little bit more inconsistent. Clearly we see rates.

changes in 2023, or we expect them to be less than the significant changes in 2023.

in 2022, so that creates some stability on the deposit movement, but there is still volatility on the market that we need to be conscious. So there could be some increases in wholesale funding based on that.

Thank you.

I'm sorry, I'm just saying that we do have the cash flow coming from the investment portfolio, but we also can use the portfolio for repos or advances.

Right, okay. And then just looking at deposits and understanding that it's hard to put a number on the remaining balances of commercial accounts or dollars that are potentially at risk for leaving for higher rates. Until then thank you again and have a great day.

Can you try and kind of ring sense the remaining deposits that are still at risk? And then as we think about the overall size of the balance sheet, are you expecting to keep it here at current levels? And using wholesale to kind of...

bridge the gap or could we still see some decline in the balance sheet here over the first half of 2023?

No, we feel the balance sheet should stay at similar levels.

In reality, we do expect growth in the loan portfolios going forward. And again, that's going to be upset with some reductions on the investment portfolio side.

It's tough to answer the one on the faucets. Clearly there was excess liquidity that has been redeployed for different things people are using and obviously the market rate movements You know move some you know disposable money into very high cost kind of treasury or high yielding kind of treasury securities and so

with great expectations, movements are being lowered now for the first half of the year. That should slow down, but it's tough to say.

Thanks for the call.

Thank you.

Thank you.

Thank you for your question.

The next question comes from the line of Kelly Mota with KVW. You may proceed.

Hi, thanks for the question. Good morning. I want to pick up on the loan side. You had really strong growth this quarter and that seems to be one of the factors that helps offset some of the other areas of pressure that we've been talking about.

Can you speak to your pipeline, how demand has been holding up as we've gotten quite a few rate hikes now and kind of the outlook for growth and the color around categories would be helpful?

If you look at my segment, obviously residential mortgage

We don't expect any growth. Actually, the portfolio has been holding, and if we saw last quarter, we have a slight growth. It's really a mix of repayments and origination at the end of the day. You know how the market, how the aggressive market is performing. Obviously the more performing rates go down, which may be moving a little bit better.

Some of the non-conforming volume will move to that. So we're forecasting that segment to remain flat. We continue to see strong demand from the consumer and auto businesses, credit card, and we continue at the pipeline for construction and commercial.

remains very strong, actually probably very similar to the private quarter that we started. Some of the deltas, one quarter versus the other, depends on the consumer. You know, what we did last year was...

you know, close to 10%. What we did in the commercial was less than that. It depends on the more chunky deals. I would say on a blended basis, you know, for the year we should think about 5 to 6%, you know, make single digits as the closest estimate based on what we see today, what we have.

and that could be some larger chunky deals.

that we're not including here. That could be participation in some of the public-private partnerships that the government is...

Structuring, to be able to define the timing of those, it's quite complex in terms of predicting when they will be finished and closed, but some of those are floating around.

are part of the fiscal plan and they've been in the negotiation with different, you know, bidders. So some of that could help actually some of the banks too, which I'm sure most of the banks locally will participate as part of our support to the infrastructure and the economy.

So I would say, Kelly, the closest estimate is about my single digits.

Got it. That's helpful. And to circle back on NII and NIM as we think about it,

potentially...

expanding in the latter part of the year, how should we be thinking about

in the latter part of the year, how should we be thinking about

the turn and threshold of NI reaching a bottom, or should we be anticipating a similar level of deposit pricing pressure this quarter? Is it potentially heating up? And if you could give any numbers around the...

core deposit base, excluding the government deposits and how betas are trending on that, that would be helpful in understanding this.

This quarter we do expect still some pressure. Remember that obviously you are seeing average impact in the last quarter of what happened with rate movement throughout the quarter. But obviously the ending number in the quarter is higher than the average that we had because of it.

Clearly a lot of it is pushed on a more volatile government component that had a very large beta.

And we expect that to have some impact in the second quarter, although a future impact because of rates, expectations are not necessarily going to be at the same pace.

On the rest of the deposit, as I mentioned, the average cost of all the other deposits was 40 basis points and

in September , in the September quarter. It was about 66 basis points in the fourth quarter. The beta there was a little bit over 18%.

And we are not seeing a dramatic move, but it's probably going to be somewhere between 18%, 22%. It's what I expect from that portfolio. Obviously, the government side will stay at similar levels that we saw, but I mean government, and public deposits in general that we saw during the quarter.

I'll turn to the expenses and then step back. I appreciate the guidance of about $120 million of expenses. I understand you had some Oreo gains.

this quarter, it looks like you would have been more around 115 million, so that implies a 5 million step up.

And just in terms of the cadence, do you think, you know, in the next quarter or two, there's going to be a bill towards that 120 or...

should we anticipate with the moving parts you laid out in your prepared remarks that we're going to enter 2023 with 120 and kind of build off that number.

Well, you have a large component, what I mentioned on payroll taxes.

all the thresholds are reset. We see immediate impact on the first couple of quarters. That tapers down towards the end of the year, some of the limits are reached. So we do see lower impact on that one.

But on the other hand, we do have several technology projects going on that we're trying to

to get to completion during the year, and that's gonna compensate. That's why the 120, 120 is the number we're expecting based on the immediate impact from that payroll implication.

We have also seen, because of the inflation components of some of the contract renewals, obviously are yielding higher increases that we saw a couple of years ago in terms of contract renewals.

So we're starting to see that. We saw that in the last quarter, but we had several and we are seeing that in the first quarter. So that's why we feel the 120 should be like a benchmark on going on the next couple of quarters. So that's why we're seeing that in the last quarter.

Got it. Appreciate the color. I'll step back.

Thank you.

Thank you for your question.

The next question comes from the line of Alex Twortle with Piper Sandler. You may proceed.

Good morning guys.

Good morning, Ali.

Just going back to deposits quickly, can you just remind us if there's any seasonality that we should be thinking about over the next couple quarters or if you have any line of sight on some deposit wins maybe early.

in 23 related to taxes or anything along those lines.

Well, you always have a little bit of movement at tax season, people using the money, but it's never been a significant component on the movement of deposits at the bank, at the institution. So I wouldn't say in seasonality it's going to drive a lot.

movement over the years. It's more of the other factors.

Okay.

And then with respect to the buyback, you get the $125 million, which I think is good until June , if I'm not mistaken. How are you thinking about using that today? Some banks are saying they're seeing more uncertainty and other banks are saying they're getting back in the market. So I'm just curious how you're thinking of things.

And if we should expect additional commentary in April , which has been your cadence over the last two years for a capital return.

Yeah, the answer, question number one, definitely, as we said before, we like to keep the optionality, and we've been doing that, and we adjust how much we do every quarter based on several factors, what we see, including market uncertainty.

At this stage, we continue to execute. I would say the most probable number for this quarter is similar to last quarter. Based on what we see today, that can be adjusted.

If we think that they became a concern to the market. On the other hand, we don't have a limit to when to use a 125. So we can do it now or do it in three quarters or do it in two quarters. There's no expiration. On the other hand, we can't do it now.

Answer to the question number two, yes, our cycle to revisit the capital plan, run a stress test, see the numbers, and decide finally how much more we're going to do forward. It's going to be April , so yeah, we do expect to make an updated announcement.

on capital during April . That is correct.

Okay, great. Thanks for clarifying that. And then, as you think about credit and net charge-offs and provisioning, I think we're all trying to figure out what the new level of – a normalized level of charge-offs are for you guys. I'm just curious if you have any more insights behind some of the other perspectives around this kind of thing.

you know, clearly chargeouts have been running much lower than what you had probably thought would be a normalized range and if whether or not 46 basis points is kind of getting closer to what you consider normalized or how you see that shaken out.

You know, we are, you know, I think there's levels of normalization. You know, we use pre-pandemic as a metric, but you know, things have changed.

Unemployment is better, it's lower.

We see more activity in the economy in different sectors.

So, you know, when we say normalized, to be honest, you know, it has to be a number between where we are today and where we were in 2019. I'm not sure if we're going to reach, you know, the end of 2019. It doesn't look like based on early indications. So obviously early delinquencies is a...

great indicator, classified asset is a great indicator, and MPAs are a great indicator. So far so good. And it's something that we monitor very, very closely.

Especially performance, you know, we have a large consumer segment, we have a material portfolio, and a diversified commercial portfolio. All of them are performing well, and you see the asset quality metrics. We are very disciplined in not accumulating classified assets.

The key components, as Aurelio mentioned, Alex, are very stable at this point, so we don't foresee necessarily, unless there is a dramatic change on expectations that trends will change too much from the most recent ones.

Okay.

Can you give us some color on that? We have very good coverage.

in our research.

Can you give us some color on the pricing that you're seeing on new loan generation?

Pricing, I think it's reasonable. It's been adjusted by the funding costs and by the curve and by the forward curve. It's been adjusted by the forward curve and by the forward curve.

So, I think competition has been fair, adjusting what we're all suffering from, which is definitely increasing the cost of funding.

Obviously, you know, it's a timing insight.

some of this but you know I think we don't see pressure

we see more competitive pressure on deposit pricing than we see in the lump pricing.

Okay.

And then just a final question for me on...

on fees. You alluded to some change in the fee structure during the fourth quarter. Is that something that's going to have a material impact in 23?

No, because of the different changes.

Don't create a some are coming down and some are going up

So, at the end, the end result is more of a normal kind of fee base on deposits as a function of deposit size more than anything.

Thanks for taking my questions.

Thanks Alex.

Thank you for your question.

The next question comes from the line of Brett Rabinin with Hobby Group. You may proceed.

Hey, good morning. Wanted to follow back on credit for a second and just talk about auto. It seems like auto is really continuing to perform fairly well, but you're...

your charge offs related to consumer were up. Can you maybe strip apart in the consumer bucket the auto net charge offs and how you kind of think about the normalization, if you want to call it that, in auto net charge offs over the next year?

I don't have the data hand for now.

I don't have specifically Otto here, but the reality, there is a relationship with size. The portfolio has continued to come up.

by a good clip over the last couple of years. So you start seeing some increases in charge of which we know are gonna happen. The auto portfolio, you know, typical charge ups in the market, remember the yields in the market are much higher, were on the low two's, mid two's way back.

That number is less than half of that today and we don't see dramatic changes on those numbers at this point.

Again, remember that in Puerto Rico we still have a very poor public transportation system and the auto becomes a very big necessity.

Okay.

And then wanted just to circle back on the securities portfolio and say if you had any color Orlando maybe on how much in maturities you're expecting this year to give you some flexibility with either loan growth funding or the deposit base. Thanks. BOARD

The cash flow has been fairly consistent over the last few months. We are expecting like $45 million a quarter between $40 and $50, which we have seen a month. I'm sorry. So we're talking about somewhere between $500 and $600 million of cash flow coming from the investment portfolio.

that can be used or will be used for loan funding.

we don't foresee doing any movement on the portfolio right now.

But it's been fairly consistent over the last few quarters and we don't see any significant change in that.

Okay.

And then lastly for me, you mentioned in the Q&A briefly, technology spending, and it seems like all three of the Puerto Rico banks are...

spending money on technology, digital channels, etc. Can you talk maybe a little bit more about the tech spend that you have going on and what you hope to accomplish in the next year or so?

Well, some of that is competitive data, but from an investment amount, we're basically moving more things to the class. It's similar to prior year levels, probably a little bit higher this year, which some of these things amortize. Theka Love, how many years in your life can you go.

you don't see the full investment in one year. We continue to move things to the cloud, more digital processes internally, and more digital processes to the clients. So those are the three categories. Reducing the size of any data centers that we have in-house.

and moving to a more efficient hardware environment with less maintenance and less operating risk. So that is in general, it's been a priority for our last five years, it was a little bit interrupted by the integration that we have to...

these products, you know, as we call it, you know, it's a non-national strategy, the branch is important, the call center is important, and the digital channel is very important. So we continue to invest in all channels to optimize and improve the level of services that we can provide to all clients.

Okay, that's helpful. Thanks for all the power.

Thank you.

Thank you for your question.

We now have a follow-up question from the line of Kelly Motto with KDW. You may proceed.

Hi, my question was asked and answered, so I'm stepping back. Thank you, though. Thank you. Thank you. Okay.

My question was asked and answered, so I'm stepping back. Thank you though. Thank you. Thank you.

Thank you.

We now have a follow-up question from the line of tumor for Zalir with Wells Fargo. You may proceed.

Again, on the securities book, it seems like for the last couple of quarters now the average balances have been pretty meaningfully higher than the period end balances. I'm just wondering what's driving that dynamic mid-quarter....

Well, you have to be careful because of valuation. The reality is that the balances have been coming down.

But obviously the OCI evaluation has changed.

For example, if you look at balances this quarter, they came down by 140 something million, but it went up by about 60 million of the total balance.

The other component that you have in there is that as we draw on federal home loan bank advances, we are required to invest in federal home loan bank stock. That's part of the requirement. So that was about $40 million in the quarter. So if you segregate that, in reality the portfolio will sound that.

140 something million during the quarter. Got it. Thank you for the call. That makes sense.

Thank you.

Thank you for your question.

There are currently no further questions waiting at this time. If you would like to ask a question, please press star followed by 1.

Silence.

There are no further questions, so I will now pass the line back to Ramon Rodriguez for closing remarks.

Thanks to everyone for participating in today's call. We will be attending Bank of America's Financial Services Conference in New York on February 14th and KBW's conference in Boca on February 16th. 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.

everyone for participating in today's call. We will be attending Bank of America's Financial Services Conference in New York on February 14th and KBW's conference in Boca on February 16th. 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. Thank you. Thank you.

That concludes the conference call. Thank you for your participation. You may now disconnect your line.