Q1 2024 First BanCorp Earnings Call
Okay.
Operator: Hello everyone, and welcome to the First Bancorp first quarter 2024 financial results call. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question during the call, you can do so by pressing star 1 on your telephone keypad, or press star 2 if you would like to withdraw your question. I will now hand the floor over to Ramon Rodriguez to begin the call. Please go ahead when you're ready.
Seth: Hello, everyone and welcome to the first Bancorp first quarter 2020 full financial results call. My name is Seth and I'll be the operator for your call today.
Seth: You would like to ask a question during the call you can do so by pressing star one on your telephone keypad or press star two if he would like to withdraw your question I will now hand, the floor over to Robert Rodriguez to begin Nicole. Please go ahead when you're ready.
Seth: Okay.
Ramon Rodriguez: Good morning everyone, and thank you for joining First Bancorp's conference call and webcast to discuss the company's financial results for the first quarter of 2024. Joining you today from First Bancorp are Aurelio Aleman, President and Chief Executive Officer, and Orlando Berges, Executive Vice President and Chief Financial Officer.
Ramon Rodriguez: Thank you Seth good morning, everyone and thank you for joining first Bancorp's conference call and webcast to discuss the company's financial results for the first quarter of 'twenty 'twenty four joining you today from first Bancorp are.
Eddie Lehmann, President and Chief Executive Officer, and Orlando Beta as executive Vice President and Chief Financial Officer.
Ramon Rodriguez: 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 in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the call.
Ramon Rodriguez: Before we begin today's call date, it's 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.
Ramon Rodriguez: The company assumes no obligation to update any forward looking statements made during the call.
Ramon Rodriguez: If anyone does not already have a copy of the webcast presentation or press release, you can access them on our website at fppinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.
Ramon Rodriguez: 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.
Ramon Rodriguez: At this time I'd like to turn the call over to our CEO Aurelio demand.
Aurelio Aleman: Thank you, Ramon. Good morning to everyone, and thanks for joining us on our earnest call today. Let's move to page four of the slide to discuss a highlight. We're definitely very pleased to start the year with another quarter of strong operating results. We posted a strong return on assets of 1.56%, and increased pre-tax preprovision income to $111 million. And we continue to do what I consider a nice job managing our expenses, resulting in an efficiency ratio of around 52%.
Aurelio: Thank you Ramon and good morning to everyone and thanks for joining our earnings call today.
Aurelio: Let's move to page four with slight.
Aurelio: Political is a highlight.
Aurelio: We're definitely very pleased to start the year with another quarter of strong operating results. We boosted strongly they are an asset of 156%.
Aurelio: Increased pre tax pre provision income to $111 million.
Aurelio: And we continue to do what I consider a nice job managing our expenses, resulting in an efficiency ratio of around 52%.
Aurelio Aleman: This result reflects, obviously, the hard work and dedication of our colleagues and, more importantly, the trust placed by our clients in our institutions as we continue to support their growth and progress. I'd like to thank all of them for their continued support.
Aurelio: These results reflect obviously the hard work and dedication of our colleagues and more importantly that Russ plays by our clients NFC solutions as we continue to support the growth in <unk> I'd like to thank all of them for their continued support.
Aurelio Aleman: Consistent with guidance, we grew loans by 4% on an in-quarter basis, mostly driven by healthy commercial and auto loan production. We do remain encouraged by commercial activities and loan opportunities available within both the Puerto Rico and the Florida region for the year. Total deposits were up by $47 million. We saw stabilization in the overall core deposit balance during the quarter.
Aurelio: Consistent with guidance, we grew loans by 4% on a linked quarter basis.
Aurelio: Mostly driven by healthy commercial.
Aurelio: So loan production.
Aurelio: We do remain encouraged by commercial activity.
Aurelio: Our normal board duty disobey level within both the board totally equal in the Florida region for the year.
Aurelio: Total deposits were up by $47 million.
Aurelio: We saw stabilization in overall core deposit balance during the quarter, but we did continue to see interline migration customer seeking higher yields.
Aurelio Aleman: But we did continue to see internal migration of customers seeking higher yields to fund deposits, as expected at today's rate. We do believe, however, that our balance sheet is very well positioned to benefit from a higher for longer environment as we redeploy lower yielding maturity investment into higher yielding assets. We should be margin accretive for the year, like in the case of this quarter, you know, those cash flows were reinvested into the long portfolio. NPAs were slightly up by $4 million to 69 basis points of total assets, primarily due to a negative migration of the $10 million case in the U.S. operation, partially offset by decreases in the oil balances.
Aurelio: Time deposits.
Aurelio: I suspected in todays rates, we do believe however that our balance sheet is very well positioned to benefit from a higher for longer environment, as we redeploy lower yielding maturity investments into higher yielding assets, which should be margin accretive for the year like the case of this quarter.
Those casuals were reinvested into the loan portfolio.
Aurelio: <unk> was really up by 4 million to 269 basis points of total assets.
Aurelio: Primarily due to negative migration was that $10 million.
Aurelio: <unk> in the U S operation.
Aurelio: I shall be offset by decreases in the Oreo balances will continue to have high demand.
Aurelio Aleman: We continue to have high demand. In terms of capital, our game plan continues; we expect to return over 100% of earnings in the form of buybacks and dividends during the year. While, you know, registering the mid single-digit long growth for or our main corporation. During the quarter, we did increase our quarterly dividend by 14% to $0.16 per share and then repurchased $50 million in common shares.
Aurelio: In terms of capital our game plan continues we expect to return over 100% of earnings in the form of buybacks and dividends during the year.
Aurelio: Register in the mid single digit loan growth for.
Aurelio: For our main core businesses do.
Aurelio: During the quarter, we did increase our quarterly dividend by 14% to 16 cents per share and repurchased $50 million and common share we still have $100 million left.
Aurelio Aleman: We still have $100 million left in our current authorization. We are currently in the cycle of updating our capital plan. We expect to provide more color regarding additional future capital actions once we report our second quarter earnings during July. Let's turn to slide five to provide some additional highlights of the franchise.
Aurelio: <unk>.
Aurelio: We are currently in the cycle of daily our capital plan.
Aurelio: And we expect to provide more color regarding additional future capital actions. Once we report our second quarter earnings during July.
Aurelio: Let's turn to slide five to provide some additional highlights of the franchise.
Aurelio: Well it is clear that our financial resource function of a positive economic backdrop that we continue to experiencing the island and our disciplined execution of our strategic plan.
Aurelio Aleman: Well, it's clear that our financial resources are a function of, you know, a positive economic backdrop that we continue to experience on the island and our disciplined execution of a strategic plan. As we said in the past, the unprecedented level of federal support continues and is driving economic and construction activity on the island. For the first couple of months of the year, about 800 million in disaster relief funds were distributed.
Aurelio: As we said in the past precedent that level of industrial work continues.
Aurelio: Yes.
Aurelio: Rivaling economic and construction activity in the island for the first couple of months of the year about $800 million of disaster relief funds.
Aurelio: <unk>.
Aurelio Aleman: When we look at the overall economy, the labor market remains in good shape. Consumer sentiment is positive. Business activity is positive, very stable or increasing, and tourism continues at record levels.
Aurelio: When we look at the overall economy labor might get removed.
Aurelio: Consumer demand is positive business activities is very stable to increasing and tourism continues at record levels.
Aurelio Aleman: In terms of the franchise, we continue to make progress with our omnichannel strategy by, you know, leveraging our size and the relationship-centric business model to achieve an ideal balance between providing value-added advice to our clients while enabling the most convenient digital and also self-service options. We believe that to continue growing our fair share of the market we serve, the Franchain investment must be broad and ongoing, with the goal of continuing to provide the best client experience, whether it's on-site delivery or the digital channels, which we are investing in both.
In terms of the franchise, we will continue to make our progress in our Omnichannel strategy.
Aurelio: By leveraging the site our size under <unk> centric business model.
Aurelio: We will achieve ideal balance between providing value added advice, where clients, while enabling the most convenient digital and also self service options.
Aurelio: We believe that to continue growing our fair share of that market, we serve the franchisee investment won't be broad and continue.
Aurelio: With the Golar continue to providing the best client experience, where there is onsite delivery or all the retail channels, which we are investing in both.
Aurelio Aleman: In terms of priorities over the coming months, we were very excited to partner with cloud banking pioneer Encino to deliver a more modern and convenient commercial banking experience to our clients. This deployment will be complemented by, you know, efforts that I mentioned before, multi-year efforts that we began in 2023, to migrate our core systems and mainframe to a cloud-based and open systems environment. It's part of our technological modernization progress, and we feel, you know, very proud of it.
Aurelio: In terms of priorities over the coming months, we are very excited to buy.
Aurelio: <unk> with cloud banking pioneer in Seattle.
Aurelio: To deliver a more modern convenient commercial banking experience to our clients.
Aurelio: The deployment will be complemented by efforts that I mentioned before our multi year efforts that we began in 2023 to migrate our core systems and mainframe to cloud based on our business environment.
Aurelio: Part of our.
Aurelio: Technology modernization relative switch, which we feel very proud about an hour.
Aurelio Aleman: Our ample capital position and disciplined expense management framework will continue to enable us to deliver value to our shareholders by investing widely in the franchise, responsibly lowering our market share, and returning excess capital when appropriate. With that, I will turn the call now to Orlando to go over more financial details. Good morning.
Aurelio: Our ample capital position and disciplined expense management framework will continue to enable us to deliver value to our shareholders by investing wisely in the franchise.
Aurelio: To responsibly growing our market share and returning excess capital.
Aurelio: With that I will turn the call now to Orlando to go with more financial details. Thank you.
Orlando Berges: Good morning to all. Well, as Aurelio mentioned, we started the year posting strong operating results. We're in 73.5 million for the quarter, which is 44 cents per share. That compares to 79.5 million last quarter, or 46 cents a share. This, as he also mentioned, translates into a 156 return on average assets, which is a strong return.
Orlando: Good morning to all.
Orlando: Hello Radio mentioned, we started the year posting strong operating results, we earned $73 5 million for the quarter, which is 44 per share.
Orlando: That compares to $79 5 million last quarter or <unk> 46, a share.
Orlando: This he also mentioned translate into 156 return on average assets with strong return.
Orlando Berges: Our adjusted pre-tax free provisions increased slightly to $110.5 million from $110 million we had last quarter. The provision for credit losses for the quarter was $12.2 million, that's $6.6 million lower than last quarter, and that's largely driven by $9.5 million in recoveries we achieved on the sale of previously charged consumer loans. Also, during the quarter, expenses were down $5.7 million, mostly the FDIC Deposit Special Assessment that was recorded in the prior quarter as compared to what we booked this quarter related to the same assessment. The effective tax rate for the first quarter was 24.3%, which is very similar to the 23.5% we achieved for 2020.
Orlando: Our adjusted pretax pre provision increased slightly to $110 5 million.
Orlando: From a $110 million, we had last quarter.
Orlando: Provision for credit losses on the quarter was $12 2 million.
Orlando: That $6 $6 million lower than last quarter, and that's largely driven by a $9 5 million in recoveries, we achieved on the sale of previously charge off consumer loans.
Orlando: Also during the quarter expenses were down $5 7 million.
Orlando: Mostly the FDIC.
Orlando: <unk>.
Orlando: The positive special assessment that was recorded in the prior quarter.
As compared to what we booked this quarter related to the same.
Orlando: Assessment.
Orlando: The effective tax rate for the first quarter was 24, 3%, which is very similar to the $23 five.
Orlando: 23, 5% we achieved.
Orlando: For 2023.
Orlando Berges: In terms of net interest income, we saw a quarter where net interest income reached $196.5 million, which is relatively flat, just slightly down from last quarter, but this quarter had one less day. That represented a $1.1 million reduction in net interest income; otherwise, we would have been up from last quarter. The loan portfolios grew $200 million on average, and the yields on the portfolio also improved. That led to a $5 million increase in net interest income, which was offset, obviously, by a number of days, which impacted the interest income on the loan portfolio by $1.8 million for a net increase in the portfolios of $3.2 million. The yield on earning assets went up 10 basis points during the quarter.
Orlando: In terms of net interest income.
Orlando: We saw a quarter, where net interest income.
Orlando: $186 5 million, which is relatively flat year slightly down from last quarter, but this quarter had one one less day that we presented $1 1 million reduction in net interest income otherwise, we would have been up from last quarter.
Orlando: The loan portfolio grew $200 million in average yields on the portfolio also improve that led to a $5 million increase in net interest income, which was offset obviously by a number of days, which impacted by $1 8 million the interest income on the loan portfolios.
Orlando: For a net increase in the portfolios of $3 2 million.
Orlando: The yield on earning assets went up 10 basis points during the quarter part of it is that change in mix as Aurelio.
Orlando Berges: Part of it is that change in Mesa that Aurelio was mentioning, in the case of interest expense. The increase in expenses was $5 million based on average balances and the 10 basis points increase in cost. But that was also offset by the 800,000 impact on the number of days in the quarter. If you look at that increase in interest expense, it's mostly related to 178 million higher average balances of brokerage deposits. That increased expenses by $2.2 million.
Orlando: Mentioning.
In the case of interest expense.
Orlando: Great.
Orlando: Expenses was $5 million based on average balances.
Orlando: The 10 basis point increase in cost.
Orlando: That was also offset by.
Orlando: 800000 impact on the number of days in the quarter.
Orlando: If we look at that increase in interest expense, its mostly related to $178 million higher average balances of broker deposits.
Orlando: That increased expenses by $2 2 million.
Orlando Berges: Also, customer time deposits grew by average $100 million, and the cost increased 22 basis points for a $2.1 million increase in interest expense. Time deposits, as Aurelio also mentioned, we expect to continue to increase. Our broker deposits are already down 58 million at the end of March as compared to where we were in December. During this quarter, we did experience an easing, a mild easing, on the pricing pressure on customer deposits.
Orlando: Also customer time deposits grew on average $100 million and the cost increased 22 basis points for $2 1 million increase in interest expense.
Orlando: Deposits.
Orlando: You also mentioned, we expect to continue to increase.
Orlando: Our broker deposits are already down $58 million at the end of March as compared to where we were in December.
Orlando: During this quarter, we did experience and he's seen easing on the pricing pressure on customer deposits. The cost of funds increased four basis points during the quarter and the cost of other interest bearing deposits.
Orlando Berges: The cost of public funds decreased four basis points during the quarter, and the cost of other interest-bearing deposits, excluding broker and time, decreased one basis point. We are now working under the assumption that interest rates will stay higher for longer and will start to gradually come down in the latter part of the year, but not at the beginning of the year like we had assumed originally.
Orlando: <unk> broker in time decreased one basis point, we are now working under the assumption that interest rates will stay higher for longer.
Orlando: <unk> will start to gradually come down in the latter part of the year, but not at the beginning of the year like we had assume originally.
Orlando Berges: That suggests that the cumulative deposit betas are at or very near what their peak levels should be, assuming rates don't start to go up again. As a result of all these changes, the interest margin for the quarter was $416, which is up two basis points from last quarter. That's consistent with our guidance.
Orlando: That suggests that the cumulative deposit betas are at or very near their.
Big levels should be assuming rates don't start to go.
Orlando: <unk>.
Orlando: As a result of all these changes net interest margin for the quarter was 416, which is up.
Orlando: Two basis points from last quarter.
Thats consistent.
Orlando: Consistent with our guidance.
Orlando: We see margins starting to normalize.
Orlando Berges: We see margins starting to normalize as interest rates stabilize, and Deposit Pricing Stabilization also stabilizes, where we continue to re-employ the cash flows from the investment portfolio into attractive spreads that will improve the margin. Our most recent estimates show investment portfolio cash flows over the next quarter to be approximately, in the second quarter, about $150 million, and through the end of the year, another $750 million, most of it being maturities, which happen in the second half of the year, $483 million.
Orlando: Interest rates stabilize.
Orlando: And.
Orlando: Deposit pricing stabilize as also we continue to redeploy the cash flows from the investment portfolio into attractive spreads that will improve the margin.
Orlando: Our most recent estimates show investment portfolio cash flows over the next quarter to be approximately.
The second quarter of about $150 million through the end of the year another $750 million most of it being maturities, which have been on the second half of the year of $483 million.
In terms of non interest income was fairly flat we did have.
Orlando Berges: In terms of non-interest income, it was fairly flat. We did have 3.1 million that we collected on annual continued insurance commission this quarter. But last quarter, we had a 3 million gain we achieved on the sale of a bank premises in the Florida region, so they offset each other. Hence, we had a slight increase in fee-based income on other other transactions. Operating expenses for the quarter are $5.7 million lower; the fourth quarter expenses were $126.6 million, and now its first quarter expenses are $120.9 million.
Orlando: $3 1 million that we collected on annual contingent insurance Commission this quarter.
Orlando: Last quarter, we had $3 million gain we achieved on the sale of bank premises in the Florida region. So they offset each other so we had slight increase on fee based income on other other transactions.
Orlando: <unk> transactions.
Orlando: Operating expenses for the quarter or $5 7 billion lower.
Orlando: The beads.
Orlando: Fourth quarter expenses were $126 6 million.
Orlando: The third first.
Orlando: First quarter expenses are under $20 9 million.
Orlando Berges: Last quarter did include the $6.3 million special assessment from the FBIC that I mentioned before, while this quarter included an additional $900,000 related to the assessment. If we were to exclude the assessment, expenses were $120 million in the first quarter of 2024, which is $300,000 higher than last quarter. What we had in the quarter was employee compensation increasing by $3.9 million, basically a typical increase in payroll taxes at the beginning of each year and also the impact of stock-based compensation in the first quarter. On the other hand, however, business promotion was down $2.9 million based on projected business promotion activity.
Orlando: Last quarter did include the $6 3 million special assessment from the FDIC that I've mentioned before while this quarter included an additional $900000 related to the assessment.
Orlando: We were to exclude the assessment expenses were $120 million in the first quarter of 'twenty, four which is $300000 higher than last quarter.
Orlando: What we had in the quarter was employee compensation increase and $3 9 million basically the typical increase in payroll taxes at the beginning of each year and also the impact of stock based compensation in the first quarter.
Orlando: On the other hand however.
Orlando: Business promotion was down $2 9 million based on project basis.
Orlando: Promotional activities.
Orlando Berges: In the quarter, we did see additional gains on Aurelio; we achieved 1.5 million gains on Aurelio. Excluding these Aurelio gains, expenses for the quarter were within the 120 to 122 million guidance that we had provided in the prior quarter, and we continue to maintain such guidance for the second quarter. Aurelio mentioned the efficiency ratio for the quarter was 52.5%, but if we exclude the special assessment, the FDIC special assessment, it would have been 52.1, which is also in line with our guidance of 52%. And we assume there are no meaningful changes in interest income. The efficiency ratio should continue to hover around the 52% target.
Orlando: The quarter did see we did see regional gains on Oreo, we achieved $1 5 million gain on Oreo.
Orlando: We exclude these oreo gains expenses for the quarter were within the $120 million to $122 million guidance that we had provided in the prior quarter.
Orlando: And we continue to maintain such guidance for the second quarter.
Orlando: So aurelio mentioned the efficiency ratio for the quarter was 52, 5%, but.
Orlando: But if we exclude a special assessment.
Orlando: <unk> special assessment, it would have been $52 one.
Orlando: Which is also in line with our guidance of 52%.
Orlando: Yes.
Orlando: We assume that no meaningful changes on net interest income the efficiency ratio should continue to hover around 52% target.
Orlando: In terms of asset quality.
Orlando Berges: In terms of asset quality, NPAs increased 3.7 million during the quarter to 129.6 million, which represents 69 basis points on total assets. The increase was driven by the migration of 10.5 million commercial loan participation in the Florida region, which was offset by reductions of 3.8 million in Aurelio and 1.9 million in repossessed autos. The inflows were up $11.9 million to $46.8 million, a lot driven by that $10.5 million case I just mentioned in the Florida region.
Orlando: Our npa's increased $3 $7 million during the quarter to $129 6 million, which.
Orlando: Represent 69 basis points on total assets the increase was driven by the migration of a <unk>.
Orlando: 5 million commercial loan participation in the Florida region.
Orlando: That was offset by reductions of $3 8 million in Oreo and <unk> 9 million and reprocess autos.
Orlando: The inflows were up.
Orlando: $11 9 million to $46 8 million.
Orlando: A lot driven by that $10 5 million case, I just mentioned on the Florida region.
Orlando Berges: We also had some increases of 3.1 million in consumer loans. On the other hand, loans in early delinquency declined $17.1 million to $133.7 million, with reductions of $15.5 million in consumer loans, mostly auto, and $4 million in residential mortgages, reductions in residential mortgage delinquency.
Orlando: Also had some increases of $3 1 million and consumer inflows consumer loan inflows.
Orlando: On the other hand loans in early delinquency declined $17 1 million to $133 7 million.
Orlando: Reductions of $15 $5 million and consumer loans.
Orlando: Auto and $4 million in residential mortgage reductions in residential mortgage delinquencies.
Orlando: The allowance.
Orlando Berges: The allowance stood up at $263 million at the end of the quarter, which is up $1.8 million versus the prior quarter, but the coverage remained relatively flat at 2.14%, just one basis point lower than last quarter. Net charge-offs were $11.2 million, which is 37 basis points higher than average loan. Obviously, net of the 9.5 million recovery from the sale of the fully charged-off consumer loan. If we were to exclude this recovery, the annualized net charge-off rate for the quarter was 68 basis points, versus 69 basis points in the fourth quarter. On the capital front, Aurelio had already made reference.
Orlando: Stood.
Orlando: At $263 million at the end of the quarter.
Orlando: Which is up $1 8 million versus prior quarter, but the coverage remained relatively flat at two to one 4% just one basis point lower than last quarter.
Orlando: Net charge offs were $11 2 million, which is 37 basis points of average loans.
Orlando: Obviously net of the of the $9 5 million recovery from the sale of the other fully charge off consumer loan. If we were to exclude this recovery the annualized net charge off rate for the quarter was 68 basis points versus 69 basis points in the fourth quarter.
Orlando: On the capital front Aurelio made reference already our regulatory ratios remain strong significantly above well capitalized level.
Orlando Berges: Our regulatory ratios remain strong, significantly above the well-capitalized level, and we have continued with our capital distribution plans for share buybacks and common stocks. Our tangible book value per chair increased slightly to $8.58, but the tangible commodity ratio decreased slightly to 7.6%, primarily an increase in the adjusted or comprehensive loss component from the fair value of the security. As of March, the Adjusted Oil Comprehensive Loss represents $3.88 of intangible book value and over 300 basis points on the Tangible Common Equity Ratio.
Orlando: And we have continued with our capital distribution plan.
Orlando: Plants through share buybacks and common stocks.
Orlando: Our tangible book value per share increased slightly to 858.
Orlando: The tangible common equity ratio decreased slightly to seven 6%, primarily primarily either an increase on the adjust.
Orlando: Adjusted other comprehensive loss component from the fair value of the securities.
Orlando: As of March the adjusted oil comprehensive loss represents $3 88 intangible book value.
Orlando: On over 300 basis points on the tangible common equity ratio.
Orlando Berges: And as we have mentioned before, assuming stable rates, we will continue to recover the Adiosera losses based on the true duration that we have on the portfolio. With this, I would like to open the call to questions.
As we have mentioned before assuming stable rates, we will continue to recover.
Orlando: The ideal set of losses based on the true duration that we have on the portfolio.
Speaker Change: With this I would like to open the call for questions.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad or press star two if you would.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad, or press star two if you'd like to withdraw your question. Our first question comes from Alex Twerdahl on Piper Sandler. Please go ahead.
Speaker Change: To withdraw your question first.
Speaker Change: Our first question comes from Alex <unk> from Piper Sandler. Please go ahead.
Alex: Hey, good morning.
Alexander Roberts Huxley Twerdahl: Morning, Alec. It sounds, Orlando, from your prepared remarks, like you're saying that the expectation from here is for deposit costs and funding costs to be pretty flat or, you know, kind of close to their ceilings, but a pretty good amount of mixed shift, you know, almost a billion dollars of lower yielding securities mixing in either into loans or cash or higher yielding securities over the next year. So is it pretty safe to say that the NIM, you know, trajectory from here is going to be a bit higher, assuming that higher for longer narrative that you alluded to earlier?
Alex: Good morning, Alex.
Alex: It sounds.
Alex: Orlando from your prepared remarks, it sounds like Youre, saying that the expectation from here is for deposit costs and funding cost to be pretty flat or close to a ceiling, but a pretty good amount of mix shift in almost $1 billion of.
Alex: Lower yielding securities mixing either into loans or cash or high yielding securities over the next year. So is it pretty safe to say that the NIM trajectory.
Alex: Trajectory from here is going to be a bit higher assuming that higher for longer narrative that you alluded to earlier.
Alex: Great.
Alexander Roberts Huxley Twerdahl: Yeah, the expectation, assuming rates don't start going up again, which is not the expectation we have, it's right what you mentioned, Alex, we're going to have the benefit of repricing the investment portfolio, either through loans or through reinvestment of the portfolio. We're going to see some further increases on time deposits. So there's going to be some, but the other chunk of the deposit should stay at similar levels where we are now.
Alex: Yes.
Alex: Expectation assuming rates start going up.
Speaker Change: Again, which is not the expectation we have it's great what you mentioned Alex.
Speaker Change: We're going to have the benefit of.
Speaker Change: Repricing of the investment portfolio.
Speaker Change: Either launched or through reinvestment of the portfolio.
Speaker Change: We're going to see some further increases on time deposits, so theres going to be some cost increases.
Speaker Change: But the other chunk of their deposits should stay at similar levels, where we are now.
Speaker Change: So the net the net result would be.
Alexander Roberts Huxley Twerdahl: So the net result would be some additional pickup on the margin. As we had mentioned before, we were expecting that inflection point to happen as far as the end of last year and the beginning of this year. And we're starting to see a bit of that based on the way rates are moving. Great. And then maybe just a little bit more commentary on the loan pipelines. I think in the past, you've alluded to the construction portfolio being a place where you'd expect to see some additional distribution. Disbursements this year. Is that still the case?
Speaker Change: Formulation will be come out on the margin as we had mentioned before we were expecting that inflection point to have it to happen I'll start at the end of last year beginning of this year.
Speaker Change: We're starting to see a bit of that.
Speaker Change: Based on the way rates are moving.
Speaker Change: Great and then just a little bit more commentary maybe on the on the loan pipelines I think in the past you've alluded to the construction portfolio being a place where you would expect to see some additional distributions or disbursements. This year is that still the case.
Speaker Change: Yes that is still the case, yes.
Orlando Berges: Yeah, that is still the case.
Speaker Change: Okay, and then just overall expectations for loan growth over the next couple of quarters.
Orlando Berges: Okay, and then just, you know, overall expectations for loan growth over the next couple of quarters.
Orlando Berges: You know, we continue, you know, we stick to what we provided at the beginning of the year, mid-single digit, primarily driven by commercial construction on autos, which basically mortgage mortgage flat, and some of the other unsecured consumer products probably yielding down.
Speaker Change: We continue we stick to what we provided at the beginning of the year mid single digits.
Speaker Change: Primarily driven by commercial construction on auto.
Speaker Change: Okay, which basically mortgage mortgage flat and some of the other unsecured consumer broad broadly you laid down.
Orlando Berges: And then I just wanted to ask, you know, one of the concerns here from a lot of banks that aren't Puerto Rican banks is just sort of the repricing risk of commercial real estate loans over the next couple of years of loans going from three handles up to seven or eight handles. You know, when, you know, in 2020, 2021, when you guys were putting on commercial real estate loans, were there loans going on with three handles, you know? Were they pretty comparable to here, or were there just, you know, structurally just higher yields and therefore less repricing risk on the island?
Speaker Change: Okay.
Speaker Change: And then I just wanted to ask one of the concerns here from a lot of banks.
Speaker Change: That arent, Puerto Rican banks, as just sort of the repricing risk of commercial real estate loans over the next couple of years of loans has gone from three handles up to 7% or eight handles.
Speaker Change: When in 2000 22021, when you guys are putting on commercial real estate loans, where there are loans going on with three handles.
Speaker Change: Or are they pretty comparable to here or were there just structurally just higher yields and therefore less repricing risk on the island.
Speaker Change: I will I will say that there is less repricing risk I don't remember booking loans fixed rate loans that Anthony and then I don't see we competed in that market.
Orlando Berges: I will say that there's less repricing risk. I don't remember booking loans, or fixed-rate loans that are handled. I don't think we competed in that market; we decided not to compete in that market. So, you know, we had a slide, a prior slide in the presentation or in the investor deck that talks about, that describes the repricing risk. I'll make sure that slide is put back into it. But, you know, we consider that repricing risk fairly low.
Speaker Change: Okay.
Speaker Change: Decided not to compete in that market. So so.
Speaker Change: I think we had a slide that prior slide in the presentation or in the investor deck.
Speaker Change: It talks about the described the repricing risk I'll make sure that slide is put back into it.
Speaker Change: We continue that re pricing grid Fernando and manageable.
Alexander Roberts Huxley Twerdahl: Good. Thank you for taking my order.
Speaker Change: Okay. Thank you for taking my questions.
Fernando: Thank you Alex.
Operator: The next question is from Kelly Motta from KBW. Please go ahead.
Fernando: The next question is from Kelly Motta from <unk>. Please go ahead.
Kelly Ann Motta: Hi, Thank you so much further question.
Kelly Ann Motta: Hi, thank you so much for the question. One bright spot this quarter: it looks like net interest, non-interest-bearing deposits, have stabilized somewhat. As you look ahead, do you think the pressure from migration into higher cost Deposit sources has slowed a bit? I know you mentioned that you're going to continue to be impacted by CD repricing, but wondering if we're seeing a slowdown in the mix shift that should help somewhat.
Kelly Ann Motta: Hi.
Kelly Ann Motta: Right spot this quarter it looks like.
Kelly Ann Motta: Net interest.
Kelly Ann Motta: Noninterest bearing deposits has stabilized somewhat as you look ahead do you think there is.
Speaker Change: Thank you.
Speaker Change: Pressure from migration into higher cost.
Speaker Change: Sure.
Speaker Change: Deposit sources has slowed a bit I know you mentioned that youre going to continue to.
Speaker Change: The impacted by Cds repricing, but I'm wondering if if we're seeing a slowdown in the mix shift.
Orlando Berges: Yeah, definitely. What we saw, Kelly, this quarter, if you look at the MIGS, customer deposits, meaning retail and commercial, including time deposits, were slightly down 25 million. However, time deposits were up 93 million. So we have seen that shift into time deposits, but clearly, the large movement we saw into markets, we are not seeing that anymore. The public funds did increase this quarter by 73 million, more or less a stable kind of size of the portfolio, a little bit up, a little bit down every month, depending on the operations of the different entities.
Speaker Change: Helps somewhat.
Speaker Change: Yes, definitely what we saw early this quarter if you look at the mix.
Speaker Change: Customer deposits, meaning retail and commercial excluding.
Speaker Change: Including time deposits were slightly down $25 million and time deposits were up $93 million.
Speaker Change: So we have seen that shift into time deposits, but clearly the the large movement, we saw into into markets.
Speaker Change: We are not seeing that anymore.
Speaker Change: The.
Public funds <unk>.
Speaker Change: Greece, this quarter 73 million more or less stable kind of a size of the portfolio a little bit up a little bit down.
Speaker Change: Every month depending on.
Speaker Change: On the operations of all of the different entities.
Orlando Berges: But our expectation is that there is going to be stability on the deposit side this year, as compared to what we saw in 2022 and 2023, where we saw a lot of money going into the treasury markets.
Speaker Change: But our expectation is that there is going to be a stability in the deposit side. This year as compared to what we saw 2223, where we saw a lot of money.
Speaker Change: Going into into the Treasury markets and so.
Speaker Change: Got it that's helpful and then.
Turning to your fee income there is that.
Speaker Change: Nice nice uptick in mortgage banking is laws.
Orlando Berges: Got it. That's helpful.
Orlando Berges: And then turning to your fee income, there was a nice uptick in mortgage banking, as well as insurance commission income, which was up quite a bit. Just wondering if there was anything unusual or not expected to be necessarily repeatable in future quarters? And if this is a good level of mortgage banking activity here?
Speaker Change: Insurance Commission income line was up quite a bit just wondering if there was anything.
Speaker Change: Unusual or.
Speaker Change: No I expect it to be.
Speaker Change: Necessarily repeatable and in future quarters.
Speaker Change: This is a good good level of mortgage banking activity here.
Speaker Change: Okay.
Orlando Berges: Well, I mean, the largest component of this quarter's change was obviously the insurance contingent commission. That happens in the first quarter of each year. It doesn't repeat through the year; it's a function of volumes generated through the year. Based on that, there is always a level of contingent commissions that are paid at the beginning of the following year from the different insurance companies.
Speaker Change: The largest component of this quarter of change was obviously the insurance contingent commission that happens in the first quarter of each year the.
Speaker Change: The sudden repeat through the year, it's a function of volumes originated through the year.
Speaker Change: On that there is always a level of contingent commissions that are paid at the beginning of the following year from the different insurance company.
Orlando Berges: So that $3 million is not something that we're going to see in every quarter. But we saw more originations with rates being at a better level in terms of conforming paper that could be sold. So the expectation is sort of a stable kind of thing. Obviously, we need to see what's happening with this recent spike in rates. We don't know if that's going to affect the conforming market a little bit. But other than that, the expectation is sort of a continuation of what we saw in the quarter.
Speaker Change: So that $3 million and it's not something that we're going to see in every quarter.
Speaker Change: But we saw more and more.
Speaker Change: Originations with rates been.
Speaker Change: At a better level in terms of BOE of conforming paper that could be sold so the expectation is sort of a stable kind of thing obviously.
Speaker Change: We need to see what's happening with this recent spike in rates.
Speaker Change: We don't we don't know thats going to affect a little bit the conforming market.
Speaker Change: Other than that it's the expectation is sort of continuation of what we saw in the quarter.
Speaker Change: Got it Super helpful.
Kelly Ann Motta: Got it. Super helpful. Maybe the last question for me.
Speaker Change: Maybe last question for me.
Orlando Berges: I feel like after last quarter, there was an investor focus, particularly on consumers in Puerto Rico, with you and your peers talking about some normalization there. But it looks like you guys were able to realize a nice recovery on some previously charged-off loans. Just wondering if you could talk more about the health of the Puerto Rican consumer at this stage, as well as, you know, any kind of puts and takes as we look ahead as to how we think about the normalization of credit in this environment.
Speaker Change: Like after last quarter there was.
An investor focus on particularly.
Speaker Change: In Puerto Rico.
Speaker Change: With you and your peers talking about some normalization there.
Speaker Change: Right.
Speaker Change: Looks like you guys were able to realize a nice recovery on some previously charge off loans. Just wondering if you could talk more about the health of the Puerto Rican consumer.
Speaker Change: At this stage as well as any any kind of puts and takes as we look ahead as to how we should be thinking about.
Speaker Change: The normalization of credit in this environment.
Orlando Berges: Yeah, I think we've been covering this topic since last year, actually expecting that to happen early last year, as the excess liquidity provided by the pandemic into the consumer accounts was moving out or being utilized. So, you know, that it started to happen more in the second half of last year, but normalization was still getting to pre-pandemic levels. We expect that to last, you know, a few more quarters, not necessarily a lot longer, primarily on the unsecured components of credit cards and personal loans, which is very similar to what happened in the U.S. industry banks, which is, you know, driven by what we believe is the utilization of liquidity by, you know, score levels that were artificially, you know, higher around the writing in some of the cases. So, you know, we expect that to continue.
Speaker Change: Yes, I think we will be.
Speaker Change: We'll be covering this topic since since last year actually expecting that to happen early last year.
Speaker Change: As the excess liquidity provided by by the pandemic into the consumer accounts.
Speaker Change: Going out were being utilized.
Speaker Change: So that is that.
Speaker Change: That it started to happen more in the second half of last year.
Speaker Change: Still.
Speaker Change: Normalization still getting to pre pandemic levels.
Speaker Change: We expect that to last.
Speaker Change: Four quarters known as early.
Speaker Change: Longer.
Speaker Change: The primarily on the answer give components for credit cards.
Speaker Change: Our loans, which is very similar to what.
Speaker Change: To what happened in the U S industry banks, which which is driven by by what we believe utilization on liquidity by.
Speaker Change: Score levels that were artificially higher.
Speaker Change: Our underwriting in some of the cases, so so we expect that to continue.
Orlando Berges: The, you know, I think, you know, it's important to understand on the consumer side, those losses are reflected immediately. It's a very short cycle, and MPAs are not accumulated. So whatever you see, you know, in the short term, you also see in the recovery in a very short time.
Speaker Change: The I think it's important to understanding the consumer side. Those losses are reflected immediately is a very short cycle.
Speaker Change: Mbas or not accumulated so so whatever you see.
In the short term.
Speaker Change: Also in the recovery.
Kelly Ann Motta: I got it. Helpful.
Speaker Change: Very shortly.
Speaker Change: Yeah.
Speaker Change: Got it helpful. I'll step back. Thank you so much for the time.
Kelly Ann Motta: I'll step back. Thank you so much for your time. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you we have no further questions on the call. So I will hand, the floor back to Rebecca.
Ramon Rodriguez: Thank you. We have no further questions on the call, so I will hand the floor back to Ramon.
Speaker Change: Okay.
Rebecca: Thank you to everyone for participating in today's call. We will be attending Wells Fargo Financial services conference in Chicago on May 14.
Ramon Rodriguez: Thank you to everyone for participating in today's call. We will be attending the Wells Fargo Financial Services Conference in Chicago on May 14th. We look forward to seeing a number of you at this event, and we greatly appreciate your continued support. Have a great day. Thank you. This concludes today's conference call. Thank you all very much for joining.
Rebecca: Look forward to seeing a number of you at this event and we greatly appreciate your continued support.
Speaker Change: Great day, Thank you.
Speaker Change: This concludes today's conference call. Thank you all very much for joining.
Speaker Change: [music].
Operator: Thank you all very much for joining us.