First BanCorp. Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to the First Bancorp Second Quarter 2023 Financial Results Call. My name is Candice, and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. CPAP. I would now like to turn the call over to our host, Ramon Rodriguez, Investor Relations Officer.

Operator

Please go ahead.

Speaker 1

Thank you, Candice. Good morning, everyone, and thank you for joining First Bancorp's conference call and webcast to discuss the company's financial results for the Q2 of 2023. Joining you today from FirstBank Corp are Aurelio Aleman, President and Chief Executive Officer and Orlando Verres, Executive Vice President and Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve Certain forward looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward looking statements made due to the important factors described in the company's latest SEC filings.

Speaker 1

The company assumes no obligations to update any forward looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, You can access them at our website at fppinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

Speaker 2

Thanks, Ramon. Good morning to everyone, and thanks for joining our call today. Once again, I have to say that we're very pleased to report Strong results for our franchise, we earned $70,700,000 or $0.39 per share during the quarter, We've translated into a solid 1.51% return on assets. Pretax preparation was flat, Continued strong when compared to previous quarter, slight reduction in net interest income was offset by lower expenses and higher non interest revenues. The provision for credit losses increased to $22,200,000 and credit quality remained stable with nonperforming asset representing just 63 basis All in, a great quarter with most KPIs moving in the right direction.

Speaker 2

This year, we just begin the celebration of our 75th anniversary for the company That we're going to be celebrating during the second half of the year. I'll take the opportunity to thank all my teams across the 3 regions for their work, their ongoing commitment To the organization, to our clients and the communities we serve, a great first half of the year to continue moving forward. On the capital front, we completed our capital planning process during the Q2 and very pleased that our Board approved an additional $225,000,000 common share repurchase program. We expect to repurchase $150,000,000 in common stock during the second half of twenty twenty three, Of which $75,000,000 relate to the remaining amount of the previously approved stock purchase program that was resumed early in July. Our ample capital position remains significantly above well capitalized thresholds, which allow us to continue growing the franchise On the current operating environment while preserving shareholder value.

Speaker 2

Now let's please move to Page 5 to discuss some highlights of the balance sheet. The loan portfolio grew for the 6th consecutive quarter, underscored by solid consumer and commercial loan growth. Broad was actually in line with our mid single digit growth guidance that we provided earlier in the year. Consumer loans grew $88,000,000 or 10% linked quarter annualized and commercial loans increased $71,000,000 or 5% linked quarter annualized. This loan growth was partially offset by the expected reduction on the residential mortgage portfolio with the quarter Happened to be $90,000,000 loan production activity continue very consistent during the first half of the year.

Speaker 2

And I think the good news is we continue to see very strong pipelines for the remainder of the year, particularly on the main market. I think it's important to mention, we continue to operate with our conservative risk appetite. In spite of the optimistic environment that we see, we have not changed risk appetite moving forward in our main market. We have said in the past, we operate well diversified and balanced portfolio, managed within the guardrails established by our risk management function and overseen by our Board. Our commercial loan book specifically is comprised of borrowers across multiple industry, manual exposure to office, as You can see in the graph on the right side, limited risk, office real estate exposure, And I will say minimal refinance risk over the next 2 years.

Speaker 2

That said, we remain vigilant to the potential impact of monetary policy or Potential slowdown in the U. S. Economy may have credit and loan demand. But I'm really very encouraged by the ongoing business activity in the island And economic growth over the short and medium term.

Speaker 3

Let's turn to Page 6

Speaker 2

to discuss our funding profile And if you I think an important element these days, deposit performance. Overall, total deposit increased $768,000,000 during the quarter, excluding broker, CDs and government, deposit decreased by 104,000,000 Mostly driven by reduction in demand deposit accounts across all regions, offset by increases In the time deposit category of $149,000,000 customers continue to reallocate cash Into higher yielding alternative. Government deposit, which are fully collateralized, increased by 761,000,000 Primarily in Puerto Rico. Overall, deposit growth allow us to continue to repay some of the borrowings we took out in the Q1 to provide Our liquidity position remains very strong. Total unused liquidity Available liquidity increased to $5,600,000,000 during the quarter and now represents over 117% of uninsured deposits.

Speaker 2

The deposit base composition is very solid with a 36% non interest bearing ratio and average balance per account approximately at $25,000 We do expect that industry wide core deposit trends will remain relatively stable over the second half of the year. We continue to focus on our core deposit strategy, center our own increasing client share, Launching new products, attracting new customers and providing superior quality service, expanded branch network and And the branch network and self-service digital channels are already part of the offering. Let's move to Slide 7, Page 7 to discuss how we see the operating environment. The economic background in Puerto Rico continues to be supported by strong labor market compared to prior years On a consistent flow of federal disaster funds, foreign investment, a preliminary employment figure for June show that peso employment was up 2.4 When compared to the prior year, unemployment stayed at 6.1%. An important The statistics that we continue to monitor is passenger activity, which at the main airport continue to increase traffic in June, up 22% when compared to June last year.

Speaker 2

And the Economic Activity Index, the quantitative indicator of economic growth in the island, registered in May Isai's highest rating since June 2015, and it was up 1.8% when compared to the prior year. Business activity continued to be solid, manufacturing sector is stable, strong consumer confidence reflected by Strong auto sales and strong retail sales that are being reported during the first half of the year. And I think it's important to highlight that we're very encouraged to see the accelerated deployment of these asset relief funds. We actually have doubled the pace Of disbursements when compared to the 1st 5 months of last year, May January to May is at $1,800,000,000 versus Approximately $900,000,000 prior year. So that is really funds are do moving, and we see it in the construction activity out there.

Speaker 2

During the quarter, we also continued to make progress in our omni channel strategy, deploying our small business digital lending offering to our regions, And we also relaunched a new corporate portal, which we actually serve as a very important tool for And the digital sales capabilities and digital experience of our customers. Now I will turn the call to Orlando to go over some

Speaker 3

Thank you, Aurelio. Good morning, everyone. 2nd quarter was a very stable quarter. In the quarter, we faced net interest income pressures that we had mentioned In the prior quarter earnings discussion, we also saw some increases in the provision for credit losses, but ended up with a lower expense base. Net income, as Aurelio mentioned, was $70,700,000 or $0.39 per share.

Speaker 3

If we exclude some non recurring gains we had in the quarter, Net income was non GAAP net income was $66,800,000 or $0.37 a share. Adjusted pretax pre provision income was $118,000,000 basically the same as last quarter and also as Aurelio mentioned, strong Return on asset at 1.51 percent. The provision for the quarter was $7,000,000 higher. It's mostly related to the growth on the portfolios and the impact of the project There are deterioration on commercial real estate values at a national level, which could potentially affect our markets, Even though we don't see it at this point, but still has been incorporated as part of the analysis of the provision. The effective tax Rate for the quarter was down to 30.1%, which is like 1% lower.

Speaker 3

Last quarter was 31.2 It's mostly related to reduced federal taxes estimates as funding costs have grown in our U. S. Operations. In terms of net interest income for the quarter, it was $199,800,000 which is $1,100,000 lower Then last quarter, interest income was higher by $9,800,000 but interest expense grew $10,900,000 in the quarter. In the commercial portfolio, interest income grew 3,400,000 On originations, the yield of the commercial portfolio grew 15 basis points this quarter, and the average balance was up 27,100,000 As Aurelio mentioned, the ending balance, the growth in loans was about $140,000,000 this quarter.

Speaker 3

In terms of consumer loans, interest income increased $3,900,000 mostly Related to the $71,800,000 growth in the average balances, but we also had a 13 basis points increase in yield. In addition, the quarter reflects

Speaker 2

Okay. I just got a message that we should be good to continue. So Orlando,

Speaker 3

hopefully, they heard the discussion so far. I was saying that over the last 12 months, our cumulative beta on interest bearing government deposit in Puerto Rico With 75%. However, for this quarter, with a lag effect, it was 100%. On the other hand, the cumulative beta on interest bearing deposits, which exclude government and time, was 14% over the last year. Net interest margin for the quarter decreased 11 basis points to 4.23%, mainly reflecting the effect of the higher rates paid on the deposits And that increase in migration from non interest bearing and other low cost deposits into time deposits That exceeded definitely the benefit of increases in rates on the lending side.

Speaker 3

We expect that net interest income will continue growing during the next Couple of quarters, there are 2 to 3 main factors. Repricing of loans and cash balances that will happen during the next Couple of quarters, at least based on rate expectation. The projected loan growth at a definitely higher yields And the repricing of the cash flows that we're getting from the low yielding investment portfolio maturities Over the next two quarters, dollars 380,000,000 in investment securities mature from the existing portfolio. Interest expense, on the other hand, is also expected to increase. Maturing time deposits will be provided at higher rates.

Speaker 3

Non interest bearing and other low cost deposits probably should continue some shift into higher cost and deposits. And the cost of poly deposits will grow with increases in rates. And those are the components That led us to say last quarter that we felt stable net interest income with some growth associated with portfolio growth and Which we still feel it's going to be the case. In terms of other income, it increased by $4,000,000 this quarter. We collected $3,600,000 on a settlement of an old legal case and also recognized $1,600,000 gain from the repurchase at a discount Of $21,400,000 in junior subordinated debentures, these gains basically offset With the $2,300,000 we had last quarter in contingent insurance commissions, which are collected in the Q1 of each year based on prior year productions.

Speaker 3

In terms of the expenses, we saw operating expenses decrease $2,400,000 to $112,900,000 during the quarter Compared to $115,000,000 last quarters, both quarters include approximately $2,000,000 in net gains from the The second quarter also includes $1,000,000 in legal and operational reserve releases. While the Q1, we collected $1,200,000 in annual credit card expense incentives that reduced our processing costs for the quarter. Excluding these items, expenses were approximately $115,900,000 compared to $118,000,000 last quarter, $2,500,000 reduction. Most of this reduction relates to payroll taxes as employees reach the maximum taxable amount for some of these tax components. Expenses, in general, have remained below our guidance, In part due to delays in the timing of some of our capital projects, but also due to continuation of our expense management initiatives, What we expect for the Q3, there will be some increases on compensation based on the Merida increases that have been Granted, just effective July.

Speaker 3

And we'll see some increases in business promotion related to several events that are planned for the second half of the year As part of our 75th anniversary celebration, these expenses will take us closer to the guidance we have provided, But definitely, we expect to be slightly under the guidance at this point. Our efficiency ratio remains Very low at 47.8 percent excluding some of those other income items I mentioned, it's closer to 49%, still Very low and lower than the 50% Rachel mark. Asset quality has continued to be performed very well. Non performing assets decreased $7,900,000 to $121,000,000 with just 63 basis points of assets. Commercial non performing and down 4 point $4,000,000 driven by the $6,200,000 charge off we recorded on a Florida loan that was moved to nonperforming last quarter.

Speaker 3

Also residential mortgage nonperforming are down $3,100,000 and properties In OREO are down $1,300,000 Inflows to NPL decreased by $4,800,000 Total $24,000,000 for the quarter, and it's mostly related to the C and I loan I just mentioned that was moved to nonperforming last quarter. We did see some uptick in early delinquency in the quarter. Early delinquency defined as $30,000,000 to $89,000,000 that increased $24,000,000 But if we split it in components in the commercial side, it was mostly temporary since we had $4,500,000 loan that mature and it's in the process of renewing of being renewed, but it's remained current. On the consumer side, early delinquency represents 2.24% of consumer loans, Which even though it's higher than March, it's very similar to what we had in December, which was 211, but it still is much lower than the 301 We had in pre pandemic in these portfolios. Finally, net charge off for the quarter increased again because of the $1,000,000 we took in the commercial case represents 67 basis points of average loans, up from 46 basis points we had last quarter.

Speaker 3

The allowance for credit losses, it's 200 it stands at $281,000,000 which is $3,000,000 higher than last quarter. On just loans and leases, it's $267,000,000 which is $1,500,000 higher than last quarter. This increase reflects the again, the growth in the portfolio and the impact of Of the commercial real estate value forecasted deterioration at the national level, which does have an impact on the allowance For Sierra Leone, in our case, even though we do realize and consider that The future impact in Puerto Rico and what we have in the Florida market at this point is lower than what it's out there and at a national level. The ACL to loans was flat at $228,000,000 when compared to last quarter, which was 2.29 On the capital front, capital continues to be very strong. As Aurelio mentioned, we continue to execute our capital plan.

Speaker 3

At the end of the quarter, regulatory capital ratios could continue to be well significantly above well capitalized ratios, And our tangible book value per share decreased only $0.03 is driven by the decrease in the fair value of the securities, Which also led to a 9 basis points reduction in TCE, which is now at 703. As of the end of the second quarter, the OCI adjustment was $772,000,000 which represents about $4.30 on a tangible book value per share and decreases the TCE ratio by about 361 basis points. Again, as we mentioned last quarter, the investment portfolio has not been growing. And based on Our current analysis, we expect repayments of $713,000,000 over the next 12 months. That includes the $380,000,000 over the next six that I mentioned.

Speaker 3

And there are another EUR 1,300,000,000 in maturities through the middle of 2025. So we continue To pick up that cash flow and reduce the OCI adjustment associated with it. With that, operator, I would like to open

Operator

So our first question comes from the line of Brett Rabatin of Hulte Group. Your line is now open. Please go ahead.

Speaker 4

Hey, good morning, guys. Good morning. I wanted to start with the charge offs. Hey, Aurelia. I wanted to start with the charge offs in the quarter.

Speaker 4

I was having a little difficulty hearing, but the C and I charge offs, can you Go back over that, what the C and I charge offs were?

Speaker 3

The C and I charge offs, it's You might remember last quarter, we moved into non performing $7,100,000 loan we have in the Florida market, which is On the energy industry, which had some specific issues associated with the hurricane that happened in the prior year. And That case ended up not performing at this point. Collectibility of the case is not clear. So we ended up charging The amounts that are expected not to be collected, which was approximately $6,100,000 So That's that's the case. That was the only large thing.

Speaker 3

Everything else was more or less in line, slightly lower on the consumer side on some But in line with prior quarter.

Speaker 4

Okay. And then if I heard you correctly, you said the NII Dollars would be higher in the back half than the first half. And it sounded like from I was trying to write down the notes, I want you to have repricing. I think I heard you say $280,000,000 of securities maturing. Are you guys assuming the margin reverts higher in the back half of the year?

Speaker 4

And any thoughts on the magnitude?

Speaker 3

Well, on the back half, what I Hussein, there are positives and negatives in the sense that we see increases on the earnings side From again, as you mentioned, on the investment portfolio, repricing of some loans, repricing of cash And also the originations that are expected on the second half, growth portfolio growth, We feel that portfolio growth is a win that is going to push net interest income up. Margin, I don't I'm not so sure it's going to be up. Margin, it's going to be flat to slightly down in the quarter, but volume, it's going to take us up. Again, some of it could clearly, the investment portfolio repricing doesn't happen from the start. It happens throughout the quarter.

Speaker 3

It's going to move 1.5% sort of yields into at least 5.4 percent in a cash account or something better than that on the lending side. So those are going to do pickups, but the government side will reprice with rate increases as the one we had yesterday, And that would offset some of

Speaker 4

it. Okay. And I didn't quite understand It looked like during the quarter, you used some you brought on some brokered CDs and at the end of the quarter anyway, the balance sheet was a little more liquid in cash. I know you were trying to get out some higher cost stuff as well, but any thoughts on using the brokered CDs, what that was related to as opposed to just Using liquidity from the balance sheet to fund loan growth?

Speaker 3

Yes. The broker CDs, we've been using it mostly on the on our Florida market, not in Puerto Rico. We use balance sheet. Sometimes it's a function of a mix of tax implications. The use that we are expecting on some things in Puerto Rico, what we want to keep in cash because of the level Of government deposits that we have that have some additional volatility, so all of that is taken into account.

Speaker 3

But at the end, it's a function of what how much we want to fund the U. S. Operations from Puerto Rico or using some direct costs, In this case, brokers in that operation. The Florida market has been very expensive, and brokers So that we're taking our note long term. So we've been using that as a way of managing and balancing what we want to see on the future of the balance sheet.

Speaker 4

Okay, great. Appreciate all the color.

Speaker 3

Thanks.

Operator

Thank you. Our next question comes from the line of Timur Braziler of Wells Fargo. Your line is now open. Please go ahead.

Speaker 5

Hi, good morning.

Speaker 3

Good morning, Timur.

Speaker 2

Maybe following

Speaker 5

up on the line of question Turning around the NII. It looks like the securities book from a period end balance is smaller than the average balance. I'm just wondering, is that Timing issue, because it would imply that the balance sheet is going to be smaller in the back end of the year, and then you're going to assume that we have some Pressure from just seasonality of public funds and those rolling off in the back end of the year. Is the Outlook that the loan growth offsets that and the balance sheet has kept flat to higher, and that's what's Driving the NII growth? Good.

Speaker 5

Because it seems like there's some structural headwinds just on the balance sheet size and getting NII higher.

Speaker 2

Well, I think it's important, as Orlando mentioned, the $380,000,000 for example, of cash flows In the second half of the year, that comes from the investment portfolio are yielding about 130, 140. The objective is actually to replace that with loans on the books. And those loans on the books are coming in On average, on a blended, about 7.5% when you add all the products. So obviously, there is an improvement there to NII. The offset to that is how much will be the delta on the deposit side, Okay.

Speaker 2

Specifically government, we do not expect government deposits to decline because there is The innovation of money coming in, money goes out, there is a lot of inflow and outflow in that bucket. Net this quarter was positive. They could decline slightly, but we don't expect a significant decline on those. And the bet on those is, as you can see On the new slide that we put together, it's higher than in the other core deposits. So that 3.80 is important.

Speaker 2

The size of the Well, at the end of the day, there are loans that are that comes in to replace lands that are that paid off a mature. Well, what's going to I think what's going to drive the NII up is how much we can grow the portfolio. And obviously, We've been achieving our guidance on that sense, Which is mid single digit, but I will say the reality is that we have to do more than that to in terms of growth To be able to achieve NII improvement, I will say net net, it comes to that. If we grow what we've been growing, it's going to be about flat, what we just So, and again, there's a lot of pluses and minuses here that we are adding together and trying to simplify for you. But it would depend basically how much more I think if you look at the treasury curves, That could be a good indicator what happened with the short term treasury curves because that's where the pressure comes In competing with the deposits of the CDs and the government deposits, so especially the 1 year treasury as an indicator.

Speaker 3

And specifically on what you mentioned, the investment portfolio in actual dollars was down about $111,000,000 in the quarter. There is reduction that doesn't go into average, which is related to the OCI valuation. That doesn't affect the average. But also if you look at the lending side, the loan portfolio grew $140,000,000 or so in the quarter, And the average growth reflected on the portfolio was less than that. So when you consider those factors, We don't see the balance sheet coming down because of that.

Speaker 3

It's reallocating it into some of the lending components that are coming into the balance sheet At a higher yield. And again, as I mentioned, we don't the level of government deposits that are that we have out there, It's taking us to a higher level of also of cash kept on the account, which we don't foresee reducing that at this point based On the composition of those deposits, that's why you what you see at the end, it's not a reduction on the balance sheet.

Speaker 5

Okay. That's helpful color. Thanks for that. And then maybe just looking at the actual securities yields in the quarter, it looks like MBS yields Declined a good bit here quarter on quarter. Is that just a mix shift of what's rolling off?

Speaker 5

And I guess, If the expectation isn't to reinvest future maturities, kind of what do those bond yields would look like As some of this $380,000,000 rolls off over the next two quarters?

Speaker 3

On the investment on the CMO side, especially, there are 2 things. Obviously, what's running off, But it's also a function of changes on prepayments from quarter to quarter that affects the there is an average The calculation that is done over time to incorporate repayment assumptions, and if that changes, it changes A bit the assumptions. And we had some of the repayments assumptions affected as that reduced a bit The amortization of some of the discount and premiums that we had in the portfolio, that also created some of that variability that you're saying. As the 380 matures, those are things That are mostly contractual maturities that are coming due on the next two quarters and clearly with lower yields And those are going to reprice. But we don't expect to see significant changes on the yields on the remaining portfolio from what we have seen over the last 2 or 3 quarters.

Speaker 5

Got it. And then switching to the expense side, there was a comment in the prepared remarks The delayed capital expenditures is partially responsible for the better expense run rate. I guess, what's the timeline look like for those Capital expenditures and the fact that there is some delay, does that mean the magnitude when that initially starts is going to be a little bit larger? So maybe just talk to the time line of those expenditures and then what that actually does to the expense rate once those start to hit?

Speaker 3

Well, when I say delays, when we said delays in there, some of these projects, not that they were put on hold, Some of these are ongoing. It's taking longer, some of the stages of the project. So it's not going to be all at once kind of thing. It's going to happen We have overtime, and that's why it's affecting on the next couple of quarters, it's going to be lower no matter what Because of the pace at which some of those projects are ongoing at this point. So it's not something that you'll see hit At once big, it's going to be unless we are able to accelerate some of it, which at this point, we don't foresee that On the larger projects?

Speaker 3

So that's why the run rate on that specific component will continue to be lower than we Had originally anticipated.

Speaker 5

Got it. And then just lastly, a modeling question. Do you have the average balance of public funds for the quarter?

Speaker 3

The average balance, I can I don't have it handy, Timur? I can get it to you. We ended up with in Puerto Rico with $2,900,000,000 of government deposits. We I think $2,200,000,000 at the end of last quarter, but we'll get you the average. I don't remember from the top of my head What exactly the average?

Speaker 3

Okay. Thank you for the questions.

Operator

Thank you. Our next question comes from the line of Alex Fyodor of Piper Sandler. Your line is now open. Please go ahead.

Speaker 6

Good morning, guys.

Speaker 5

Good morning, Alex.

Speaker 6

First off, I was just curious, what your expectations are for the balances of those government deposits Over the next couple of quarters, if you expect those to sort of flow out, I guess, with seasonality or maybe where you expect them to end the year?

Speaker 2

I will say, most probably, we'll stay around where we are today. I think we will see some in and outs. There is a couple of initiatives related to the energy That are linked to some of those deposits, the energy plan. So if those are move ahead Of the timeline, those deposit will fall this year, it's not definitely by early next year, they will which is the plan. It's not a firm answer, I know, but that is just the volatility that is behind those.

Speaker 2

I think today, I have to Say, we should be okay for this quarter based on what we know, what we see and the price that are ahead of us. But aside from that, it will depend on the timing of some of those projects that are linked to this, yes.

Speaker 6

Okay. And then are those I mean, I assume that those are going to peak out at some level that's below Fed funds Despite the high beta nature, but I mean, maybe you can tell us where those, I guess, might peak out in terms of the cost. And then also just If you have the cost of you put the betas in here over the various buckets, the interest bearing public funds, the time deposits and then sort of the core deposits, Do you have the actual interest cost of each category?

Speaker 3

Yes. We the average Cost of government deposits in Puerto Rico for the quarter was 2.70 Obviously, not all accounts are at the same type of accounts, obviously. That does not include some non interest bearing accounts or very low interest bearing accounts that are more of DDA kind of accounts. But on average, it's about $270,000,000 at this point. And there are some accounts that move straight with Changes in rates, others that have moved a little bit differently.

Speaker 3

So that's where we have the average cost was about 50 basis points lower than last quarter. I mean, higher than last quarter. I'm sorry about that.

Speaker 6

Okay. And what about for non public fund deposits?

Speaker 3

Non public funds only, that includes if you look at I need So take it out, Alex, I don't have that one broken down. I'm sorry, I would have to we can include that as part of the disclosures. I don't have it broken down, the non government deposits separately.

Speaker 6

Okay. Understood. And then Aurelio, just going back to your comments on the loan outlook, And I think you said very strong pipelines through the remainder of the year. And then I guess just based on your comment that the sort of new loan yields We're like in the 7.5% range. Is it the assumption that the bulk of what you're looking at or you're referring to is commercial in nature?

Speaker 6

Or maybe just talk about maybe Complexion of loan growth that you expect, and if there's any big chunky moving parts in there that maybe could cause it to come in better or worse, any pay downs or anything that We should be thinking about for the Q3.

Speaker 2

Yes, I think the Q3 is kind of in the normal Run rate that we had in the first half, there are a couple of chunky ones for the Q4 that will That should close, I'm sorry, in the Q1. In terms of the yields that I mentioned, there are a combination of all the production that we So, it's about the I'm trying

Speaker 6

to take your time.

Speaker 2

Yes. There is a chart on the portfolio yield, Slide 10, how we have evolved with the trends in rates. On a portfolio basis, this has accumulated over 100 basis points overall, but when you look at the blended that comes in, happens to be around that number, It will be higher. It depends on the mix of consumer versus commercial.

Speaker 3

Alex, to your question, I pulled out the number. It's the cost of deposits of other deposits, excluding government And time deposits, it's 68 basis points for the was 68 basis points for the quarter.

Speaker 6

Okay. That's great. Thanks.

Speaker 3

And on the chart that Yes. On the presentation, we did include the average cost of all funding sources, Including non interest bearing, the average cost was the $123,000,000 that we included on the presentation. And you can see the movement on that chart over the last 4 quarters, how the average cost has moved. That includes wholesale funding and government and everything.

Speaker 6

Got it. The security maturities that you alluded to, I think you said $340,000,000 for the back or $380,000,000 for the back half of the year. Can you just break that up by quarter and tell us that, I guess the first and the second quarter as well, I think that was you aggregated it altogether in your prepared remarks.

Speaker 3

It was aggregated the it was not exactly fifty-fifty. It was about $170,000,000 in the 3rd quarter and the rest on the other on the 4th quarter. Okay.

Speaker 6

And then you talked about Getting back to your expense guidance, just remind us that was I think $116,000,000 per quarter?

Speaker 3

The guidance was 120.

Speaker 6

Okay. And you're saying that you're

Speaker 3

not going to be expecting that. Excluding OREO, that excludes OREO. So So if you're looking with OREO assuming a $2,000,000 or so gain like we had this quarter would have been equivalent to 1.18 We exclude OREO because of the volatility. We're still selling older properties that we had there at lower values that we've been clearing Different kinds of issues we could have with the properties, and we're still generating profits. That number should eventually come down, But still, it has been sustained over the 1st couple of quarters.

Speaker 3

We expect that number to be positive in the Q3, but it's going to be Probably a little bit lower than what we had this quarter.

Speaker 6

Great. Thanks for taking my questions.

Speaker 2

Thank you, Alex. Thanks.

Operator

Thank you. Our next question comes from the line of Kelly Motta of KBW. Your line is now open. Please go ahead.

Speaker 7

Hey, everyone. Good morning.

Speaker 5

Good morning, Kelly.

Speaker 7

I guess circling back to the expenses again, I know As you touched on at length, that part of the lower expense run rate right now has to do with some of these special projects You're undertaking in the timeline of that. Just as we look ahead, can you remind us just like on a broad level of kind of what The things you're strategically focused on over the next year or 2 that may comprise some of these projects, whatever you're able to share?

Speaker 2

Well, I think the largest component is migration to cloud of all IT components That encompasses significant number of projects. I think the other second one is process improvement, is investment in technology Obviously, it will make us more efficient in terms of automation with automated activity From AI, behind the 2 and robotics, ARPA, So there is it's really primary technology, some facilities components too in line with it. But I will say that would be probably eightytwenty, meaning the technology side. It's taking as Orlando mentioned, it's not that it's being accumulated. It's happening.

Speaker 2

But if we forecast at a faster pace, And it's happening on the floor.

Speaker 7

Got it. That's helpful. I just lost my train of thought. I'll step back. Thank you.

Speaker 1

Thanks, Kelly.

Operator

Thank you. As there are no additional questions waiting at this time, ladies and gentlemen, That concludes today's call. Thank you for joining First Bancorp's 2nd quarter 2023 earnings results call. You may now disconnect your line.

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Key Takeaways

  • First Bancorp reported net income of $70.7 million or $0.39 per share in Q2, delivering a 1.51% return on assets and stable pretax pre-provision earnings despite a slight dip in net interest income.
  • The provision for credit losses rose to $22.2 million, yet credit quality remains strong with nonperforming assets at just 0.63% of total assets.
  • The loan portfolio expanded for a sixth straight quarter—consumer loans grew 10% annualized and commercial loans 5% annualized—while maintaining a conservative, well-diversified risk profile.
  • Total deposits climbed by $768 million (excluding brokered CDs), supported by a 36% noninterest-bearing ratio, and unused liquidity reached $5.6 billion, representing over 117% of uninsured deposits.
  • The Board authorized a new $225 million share repurchase program, expecting to buy back $150 million of common stock in H2 2023, bolstering capital ratios well above “well-capitalized” thresholds.
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Earnings Conference Call
First BanCorp. Q2 2023
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