John Pelling – Investor Relations Officer Aurelio Alemán-Bermudez – President and Chief Executive Officer Orlando Berges-González – Executive Vice President and Chief Financial Officer.
Alexander Twerdahl – Sandler O'Neill & Partners LP Brett Rabatin – Sterne Agee & Leach Inc. Brian Klock – Keefe, Bruyette & Woods Inc. Taylor Brodarick – Guggenheim Securities LLC.
Good day and welcome to the October 28, 2014 First Bancorp reports its Third Quarter Results Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Mr. John Pelling, Investor Relations Officer. Please go ahead, sir..
Thank you, Chad. Good morning everyone and thank you for joining First BanCorp's Conference call and webcast to discuss the company's financial results for the third quarter 2014. Joining me today are Aurelio Alemán, President and Chief Executive Officer; and Orlando Berges, 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 Securities and Exchange Commission filings. The company assumes no obligation to update any forward-looking statements made during the call.
If anyone does not already have a copy of the webcast presentation or press release issued by First BanCorp, you can access it at the company’s website at firstbankpr.com. At this time, I would like to turn the call over to our CEO, Aurelio Alemán.
Aurelio?.
Thank you, John. Good morning, everyone, for joining again to discuss our results for the quarter. On the call we have today is Orlando Berges, our CFO. First, I will walk you as usual through the key highlights and then Orlando will discuss the results in more detail and then we will open for a Q&A for all of you.
Please let’s move to Slide 5 on the presentation. We’re definitely very pleased with the quarter $23.2 million in net income for the quarter, what is really our highest net income number since we turned into profitability and it represents 46% increase when we compare to third quarter of 2013.
Pre-tax, pre-provision continues strong, that actually improved from prior quarter to $50.8 million, is improved $2.1 million mostly on the expense side and we’ll see that in more detail, obviously it reflects the strength and the discipline that we have in managing our expenses..
Core operating expenses remain well controlled and total expenses declined $4.5 million, contribution of that the reduction in mortgage expenses. Our mortgage and commercial pipeline remains stable.
Our loan portfolio fell slightly primarily of some commercial loan repayments and definitely softer order lending activity in our market, which I’ll expand later. Loan origination and renewals were solid of $917 million versus $882 million in second quarter.
And in the deposit front, after a reduction that we’ve experienced in the second quarter from the government side here we were able to increase the core non-government core deposits by $76 million in the quarter. We remained focus on the asset quality side.
And trying to move or moving the held for sale loan portfolio and the other portfolio, although there were no significant sales this quarter we remain very optimistic given the significant investor activity that we continue to see in our market.
Our capital position that continue to get stronger by earning generation, tangible book and that too at $5.81 per share and obviously it’s important to highlight that the DTA valuation is now to $505 million, we extrapolate into $2.37 assuming 100% recapture. On the capital side, I just want to make a comment we’re pleased that the U.S.
Department of Treasury announced on September 9 that it would continue to win down its investment in First Bancorp.
There have been various report before of our strategies over the years and they announced that they would be selling additional shares of common stock to what is called the predefined written trading plan, which means that the united experience they are selling the stock in the market and that process began around mid of September.
To moving to our Slide 6, we have here the trend of the loan portfolio. In spite of the economic challenges, we continue to demonstrate the strength of the franchise and the consistent levels of originations and working probabilities. I have to say the quarter was also impacted by a reduction in auto sales.
We see a softening in consumer demand in our market and it’s reflected in the consumer mostly in the last six months in auto side and it’s been reflected also in the mortgage year-to-date. With that said it’s important to mention that we remain the number player in auto lending among the banks in Puerto Rico.
And we actually achieved the number two player in the mortgage origination during the second quarter. Residential loan originations, we can see in the trend versus prior year it remains challenged but we saw an increase in origination activity, Puerto Rico and Florida in the second quarter.
It’s also important to highlight that in the Florida market we continue to expand our commercial presence and during the quarter Florida contributed $71 million of commercial loan origination versus $41 million the prior quarter. After subsequent events that – honestly, we'll improve and achieve some growth on loan portfolio in the last quarter.
In early October we executed the $196 million loan purchase from Doral consisting of what we consider prime residential mortgages and definitely this purchase will help turn the loan portfolio into some growth and will help expand our customer base.
As I always say, we are very focused in sustaining our pipeline and looking for opportunistic transactions that are economically friendly and benefit our shareholders. Moving to Slide 7, on the deposit side again, when we look at the overall deposit mix the core deposit growth grew by $105 million.
Net government, un-brokered, the increase was $76 million. Again the focus – we still have lot of work to do and doing a better job in cross-selling our own customer base and we still believe we have opportunities in the local market and as well as on the Florida market.
And definitely, when we look at the numbers, liquidity continues very, very strong. Orlando will detail regarding how the cost of fund is moving and the cost of deposits is moving in the market.
So please move Slide 8, government exposure, we continue to reporting the government initiatives and this quarter the – because of repayments our government exposure declined $24 million compared to second quarter. This is something that we are managing very prudently.
And we will continue to report in transactions that are aligned to our policies, but we don’t actually looking to grow the exposure at this stage. In December our asset exposure in the government is down $96 million through the year.
Deposits as we announced in the second quarter, we had a significant reduction but stabilized obviously in line with some of the liquidity strategies that the government implemented. We continue to closely monitor the efforts and actions that the government is taking to improve the fiscal, lot of breaks have been approved.
There is a lot of efforts that we consider processes, obviously, we haven’t seen the real impact increasing on this activity, obviously an event that we closely monitor if the restructuring of the Puerto Rico Electric Power Authority, which will cover some directly.
And our outlook, as I said, we remain optimistic as we continue to witness in presentation that foreign investment in Puerto Rico, which definitely is helping certain sector for the economy. With that, I'm going to hand the call now to – over to Orlando, who will discuss the results in more detail..
Core operating expenses remain well controlled and total expenses declined $4.5 million, contribution of that the reduction in mortgage expenses. Our mortgage and commercial pipeline remains stable.
Our loan portfolio fell slightly primarily of some commercial loan repayments and definitely softer order lending activity in our market, which I’ll expand later. Loan origination and renewals were solid of $917 million versus $882 million in second quarter.
And in the deposit front, after a reduction that we’ve experienced in the second quarter from the government side here we were able to increase the core non-government core deposits by $76 million in the quarter. We remained focus on the asset quality side.
And trying to move or moving the held for sale loan portfolio and the other portfolio, although there were no significant sales this quarter we remain very optimistic given the significant investor activity that we continue to see in our market.
Our capital position that continue to get stronger by earning generation, tangible book and that too at $5.81 per share and obviously it’s important to highlight that the DTA valuation is now to $505 million, we extrapolate into $2.37 assuming 100% recapture. On the capital side, I just want to make a comment we’re pleased that the U.S.
Department of Treasury announced on September 9 that it would continue to win down its investment in First Bancorp.
There have been various report before of our strategies over the years and they announced that they would be selling additional shares of common stock to what is called the predefined written trading plan, which means that the united experience they are selling the stock in the market and that process began around mid of September.
To moving to our Slide 6, we have here the trend of the loan portfolio. In spite of the economic challenges, we continue to demonstrate the strength of the franchise and the consistent levels of originations and working probabilities. I have to say the quarter was also impacted by a reduction in auto sales.
We see a softening in consumer demand in our market and it’s reflected in the consumer mostly in the last six months in auto side and it’s been reflected also in the mortgage year-to-date. With that said it’s important to mention that we remain the number player in auto lending among the banks in Puerto Rico.
And we actually achieved the number two player in the mortgage origination during the second quarter. Residential loan originations, we can see in the trend versus prior year it remains challenged but we saw an increase in origination activity, Puerto Rico and Florida in the second quarter.
It’s also important to highlight that in the Florida market we continue to expand our commercial presence and during the quarter Florida contributed $71 million of commercial loan origination versus $41 million the prior quarter. After subsequent events that – honestly, we'll improve and achieve some growth on loan portfolio in the last quarter.
In early October we executed the $196 million loan purchase from Doral consisting of what we consider prime residential mortgages and definitely this purchase will help turn the loan portfolio into some growth and will help expand our customer base.
As I always say, we are very focused in sustaining our pipeline and looking for opportunistic transactions that are economically friendly and benefit our shareholders. Moving to Slide 7, on the deposit side again, when we look at the overall deposit mix the core deposit growth grew by $105 million.
Net government, un-brokered, the increase was $76 million. Again the focus – we still have lot of work to do and doing a better job in cross-selling our own customer base and we still believe we have opportunities in the local market and as well as on the Florida market.
And definitely, when we look at the numbers, liquidity continues very, very strong. Orlando will detail regarding how the cost of fund is moving and the cost of deposits is moving in the market.
So please move Slide 8, government exposure, we continue to reporting the government initiatives and this quarter the – because of repayments our government exposure declined $24 million compared to second quarter. This is something that we are managing very prudently.
And we will continue to report in transactions that are aligned to our policies, but we don’t actually looking to grow the exposure at this stage. In December our asset exposure in the government is down $96 million through the year.
Deposits as we announced in the second quarter, we had a significant reduction but stabilized obviously in line with some of the liquidity strategies that the government implemented. We continue to closely monitor the efforts and actions that the government is taking to improve the fiscal, lot of breaks have been approved.
There is a lot of efforts that we consider processes, obviously, we haven’t seen the real impact increasing on this activity, obviously an event that we closely monitor if the restructuring of the Puerto Rico Electric Power Authority, which will cover some directly.
And our outlook, as I said, we remain optimistic as we continue to witness in presentation that foreign investment in Puerto Rico, which definitely is helping certain sector for the economy. With that, I'm going to hand the call now to – over to Orlando, who will discuss the results in more detail..
.
Turning to – into some of these specifics of the combines of the results, provision for the quarter was $27 million, which is $255,000 higher than last quarter. If we look at the components on the consumer side, the provision was $19 million, which is $20 million the same as last quarter.
On the residential side, provision went up a $2 million, mostly $1 million increase in charge-off and the (inaudible) in the quarter. Commercial and construction provision in Puerto Rico is down $5.3 million from last quarter.
And that’s the effect of our lower specific reserves required on certain non-collateral dependent loans, which was offset by some additional reserves on some loan charge-offs in the quarter. Also, last quarter provision included $1.4 million, which was associated with the fair value adjustments on the portfolio that was acquired from Doral.
In our Florida franchise for the last two quarter, we have had several recoveries and reserve releases that resulted in $7.1 million of negative provision this quarter, compared to $12.1 million of negative provision in last year.
So, again, in essence with an increasing provision because of that, but we continue to see the recovery component coming from our Florida market. Look at net interest income, net interest income for the quarter was $127.9 million, which is down from $129.9 million, or $2.2 million.
Our margin for the quarter was 4.14% compared to 4.21% million that’s on a tax-equivalent basis – I'm sorry on a GAAP basis. The recent net interest income margin, several components of net interest income went down $1.1 million related to a reduction of $126 million in average earning assets.
We had a decrease of $2.1 million, or 29 basis points on consumer deals mostly, because last quarter, we took to income the remaining part of discount of the credit card portfolio that was acquired in 2002, that was $1.5 million.
And also new loan originations are being booked at lower rates, but the rates of those maturing because of the low interest rate environment. On the investment side, we had a 35 basis point decrease in the average yield of mortgage-backed securities.
That’s a decrease of about $1.5 million net interest income, which is attributable to faster prepayment rates on those securities that, for instance, had a premium.
As you know, because of the low interest rate environment, we have not been able to reinvest most of those funds because of the extension risks that are associated with this low interest rates. On the other hand, we had a decrease in net interest income resulting from the full quarter impact of the acquisition of the mortgage loans from Doral.
The pick-up has a difference on the mortgage side versus the commercial originations that we had with $1.8 million for the quarter. And we also had about $700,000 of pick-up because of one additional day in the quarter in interest income.
On the deposit side, overall costs of deposits remain flat at 72 basis points, but we did have the one basis points increase in our cost of interest-bearing deposits for the quarter. Broker CDs costs remain unchanged compared to the second quarter, but we did see some reductions that are related to their lower balance of outstanding broker CDs.
Overall, our cost of funds increased two basis points, which is costs related to the increase in interest bearing, but also we had some re-pricing on our $100 million repo, long-term repo, which had an effect of $400,000 during the quarter, resulting that overall funding cost increase.
Non-interest income for the quarter increased slightly $243,000 basically an increase of $600,000 in mortgage banking business, and we had – we – no longer we have any losses on the equity of the consolidated venture, that was fully amortized last quarter we discussed with last quarter's call.
If we exclude this component non-interest income regarding $400,000 and, in fact, on the other side, the impact came in from something credit and debit card fees because of the lower volume consumption in the quarter.
We had some gains last quarter on some investment sales, and we had a lower insurance commission by over $200,000 this quarter as compared to last quarter..
Employees' compensation went down $1.1 million from early performance-based compensation and stock-based compensation with them. Insurance assessment is up $1.2 million, which was driven by improvements in the liquidity.
If we see – we have a lower level of leverage commercial loans, obviously they have strengthened the capital position, an overall decrease in average assets.
Keep in mind that both second and third quarter, we have $600,000 to $700,000 of due diligence expenses, which were related to the two portfolios that have been purchased from Doral the one we did in the second quarter and one Aurelio mentioned that this happened in the fourth quarter, but all the expenses were booked in the third quarter as far as due diligence were.
On the asset quality front, non-performing assets decreased to $744.1 million, that compares to $757 million as of June. Total non-performing loans, including those held for sales decreased by $5.2 million, or 1% in the quarter. The decrease was primarily driven by charge-offs of commercial and construction loans in Puerto Rico and for VI.
Aurelio also mentioned that inflows of non-performing went down by $59 million, or 42% as compared to second quarter. Basically on the commercial and industrial that we had a few large changes coming in last quarter, the – this quarter the largest relationship related non-performing was less than $5 million.
We did see, however, some increases in inflows on the residential mortgages of $5 million as compared to last quarter. Adversely classified commercial and construction loans held for investment decreased by $35 million to $571.4 million, or 6% reduction.
And the OREO state owned balance decreased by $9 million, driven by $12 million in sales during the quarter. The progress on the release, total debt restructurings went up $72.9 million from June.
That mainly reflects the forbearance that’s granted in the third quarter on the $75 million exposure that we have with the Puerto Rico Electric Power Authority. That’s the policy remains in accrual status based on the cash flow information.
Probably you also saw, impaired loans are showing an increase of $64 million, that is directly related to that same facility that I just mentioned. Excluding the PREPA facility, parallels would have been down to $11 billion in the quarter, which is in line with the reduction on the nonperforming components.
Net charge-offs for the quarter were $42.7 million, or 1.8% of loans as compared to $52.3 million, or 2.19% in the second quarter. In that provision, net charge-offs in the second quarter improved $6.9 million resulting from the third-party adjustments on the portfolio from Doral.
Excluding those, the net charge-offs decreased by $2.7 million in the quarter. $16 million of those charge-offs in the third quarter relates two collateral dependent commercial and industrial relationships in Puerto Rico.
Recoveries of amounts charged-off $11 million in the third quarter of 2014, are up from $6.7 million in the second quarter mostly in the Florida region, but at some in Puerto Rico. The ratio of the allowance for loan losses was down to 2.42% compared to 2.55% last quarter.
The slight decrease was primarily due to specific requirements on certain non-collateral dependent commercial loans charge-offs with previously established reserves. Net carrying amount of our nonperforming loans, commercial nonperforming loans is now 57.9% on the dollar which compared to 59.9% in the second quarter.
On the capital front, obviously, the additional profitability continues to improve our capital ratios. You will see on this chart, the tangible common equity is up from 9.76% to 9.82%. Q1 is up from 16.80% to 17.30% and a Tier 1 common is up from 13.92% to 14.39%, you can see also a total under leverage there.
So we continue to lower capital base and as we continue to manage our legacy assets that Aurelio mentioned. With that, we would like to open the call for questions.
Operator?.
We are ready to begin the question-and-answer session. (Operator Instructions) Our first question today comes from Alex Twerdahl with Sandler O'Neill. Please go ahead..
Hey, good morning..
Good morning, Alex..
First question, could you give us a sense towards the size of the total charge-offs in Florida we're in, and what kind of recovery is there, sort of what the magnitude of recovery is that, if still the remainder potentially are?.
Yes, let me kind of give you that information, Alex..
You will get back to me with that information, is that right?.
Yes, Well, I’ll pull out my reports to try to give you that information..
Okay, sure.
I'll just move on and ask it really, you said in your prepared remarks that you remain optimistic on moving some of the held for sale and real estate owned properties, and you said, given the strong investment activity that you are seeing in Puerto Rico, could you just elaborate a little bit on what you mean by that and how that’s changed over the past couple of quarters?.
When I think, we continue to see C&I and revenue generating activity trading into properties, which I don’t want that we are kind of taking the longer in the legal cycle.
And some of them that we have in our (inaudible) portfolio that we sold and actually in area out, so we see a lot more people knocking doors and looking into the assets and activating due diligence, not only that and when we say about what we see in the market, it’s also from – in other banks, not necessarily First Bank portfolio, but also other banks so that’s what I did said, I feel optimistic about what we see on that pipeline..
Okay, that’s helpful. And then with the….
I'm sorry, the question, I will give you – you asked about the Florida for the quarter. For the quarter, we had a net recovery of $6.3 million in Florida, charge-offs were small, and so we had a few cases, a couple of large cases that are – we were able to recover amounts in the quarter. In June that same amount was also a recovery of $3.7 million..
What about just in terms of the magnitude that you’ve historically taken if you look back the last couple of years at loans that you are very aggressive in charging of, where these recoveries are coming from.
I mean, is it something that we will continue to see recoveries coming from Florida going forward? And I know that’s something that’s impossible to take the timing or the sizing, but you can just give us sort of a general sense for whether or not recoveries can continue from that market or not?.
We – the last charge-off in the Florida market was also happened between 2009 and 2011. So they haven’t happen over the last couple of years. And that’s just fine, we continue to build some of this possible recovery from several basis.
I'm not going to tell you that there is a huge amount in there, it’s very unpredictable, but obviously we continue to work to recover some of those cases that the economy has improved. So it’s not the driver of the numbers, but clearly it’s something that we should help seeing a bit here and there..
Okay, that’s helpful. Thank you.
And then the $192 million of loans that you purchased in Doral, those come with any deposit relationships?.
Those basically were straightly the secondary market purchase from – what we considered the prime portfolio that we conducted due diligence in the third quarter, but we’re able to close early October..
Okay.
And then just finally, every quarter I get ask you if there is any update on the timing for the DTA valuation allowance recapture?.
We continue to market on the same schedule we have mentioned in the last few quarters. As you know, this would be the fifth consecutive quarter, the one that’s just happened. And so, we'll – we continue to work with the plan of late this year early next year with second consecutive quarters just with our conversations going on.
But we still feel that that numbers are helping the assumptions that last quarter obviously your first quarter of next year it’s a very reasonable bank trend to be able to say something concrete about it..
Okay. That’s all my questions for now. Thank you very much..
Thank you, Alex..
Thanks, Alex..
Our next question comes from Brett Rabatin with Sterne Agee..
Hi, good morning..
Good morning, Brett..
Good morning, Brett..
Wanted to first ask on the U.S.
treasury piece, any color around how much they've already been able to sell, or any thoughts on what remains there?.
It’s actually, we don’t know it’s actually a private thing within the treasury. And if you look at the press release the way the process works, at the end of the 90 day period they will report.
So we will know by the – I will say close to mid-December, we will always – we will also monitor other programs to determine – frankly to determine the number, but it’s very predictable to say how much volume it’s trading there, they are trading on a daily basis..
They have 19.7 million shares going in the amount..
Brett Rabatin – Sterne Agee & Leach Inc.:.
:.
Some of the figures are really effect to restructurings or negotiated transactions that because of our great appetite we either decide not to participate or because of pricing we decide not to participate. So we don’t anticipate that to be a problem. This is just one of the more challenges that you have in a competitive market.
So – and at the same time we try to be very straight about of equality. On the other hand as you can see we compensated some of that with incremental opportunities in the Florida market which we will continue to take..
To your question, Brett, on timing, it was on average was like the minimal to quarter where you saw the effect on the interest income, there were some – earlier in the quarter and some other but later on the quarter..
Okay. And then I guess just thinking about the margin going forward.
I know that’s the premium amortization had an impact on security yields for the quarter, would it make sense for the margin to kind of grind down from here or do you think you can do some mix-shift change or any thoughts on kind of how you guys see the margin playing out over the at least the near-term?.
Well, we do expect some margin pressures. As Aurelio mentioned, there has been softening on the consumer side which is higher-yielding asset, and rates have gone up a bit on that area.
The way rates are moving, I don’t feel that we should be in a position in this quarter to do much with the investment portfolio prepayments, that is financially an opportunity but at this point most of those lines are sitting at 45 basis points and better.
On the other hand the portfolio acquisition from Doral that Aurelio mentioned, it’s been a – pushed the yields up because of the rate of those loans, the weighted average coupon, is like a decent coupon, so that could help.
But on the funding side, we are seeing stability on the brokered CD markets so we don’t feel that there should be much in terms of opportunity reducing the average cost as we had before.
We will see a little bit of pressure on one more repo that matures this quarter, that will be the last one that – not that mature, I’m sorry that we priced this quarter. That we had one in the third quarter that was – and one in the fourth quarter that were long-term repos, that they both are re-pricing certainly in the middle of the repo turn.
So all-in-all, there should be some pressures, I still feel that we could have in this fourth quarter..
Okay. Great, thanks for all the color..
Our next question comes from Brian Klock with Keefe, Bruyette & Woods..
Hey, good morning, gentlemen..
Hey, Brian..
So, as a follow-up to Alex’s question, so for Orlando on the DTA, I guess, just remind us on the process that you go through on it. I guess is that conversation that you start with your auditors now, I guess, is part of the year-end work and thinking about what you need to do to sort of justify a potential recapture on that DTA..
Orlando Berges-González:.
Second thing is taking that financial projections to be able to put them and schedule them its impact and see how the end loans would reverse throughout the timeframe.
Obviously, with – when you’re talking about financial projections you have taken into account there’s always some level of uncertainties so you have to be conservative on those numbers, and based on that you come with a full resale that it costs with the auditors. We had already some conversations with them on the subject matter.
Obviously, once we have full documentation of our position then we will sit down with them, but if we reported that we have reached our full documentation and reached our conclusions. And based on that it would – whether the accounts with the full or partial realization depending on what you see on the numbers.
So we expect that now if – definitely as you mentioned a process that we’ll start later this quarter. We’ll have started conversation in detail with the auditors since we’re in the process of completing all documentation..
I appreciate that extra detail. You know what, I guess thinking about the regulatory order, you guys continue to work down the NPLs and the impairment, thanks for the extra color related to PREPA and the impairments because PREPA slowing your impairments trends lower, NPL formation trends lower, capitals continue to grow.
So it feels like everything that was in the regulatory already you guys have stronger capital and lower impaired loans.
So I guess, is there any sort of expectation of the next time you could talk to the regulators about sort of getting that lifted as well?.
Aurelio Alemán-Bermudez:.
:.
Okay. Fair enough and I guess, last question.
Talking about some of the softness on the consumer side related to the auto portfolio, I guess can you give us a kind of idea, again, remind us how big the auto portfolio is in Puerto Rico and what kind of balances and changes quarter-to-quarter you saw on the balances and what you saw quarter-to-quarter on the originations on the auto side?.
I’m sure you’ll see more details in the queue, but it’s about a baby on 50 in the order retail and we have a leasing portfolio which is just a financial lease portfolio which is also autos, which is another $300 million approximately. So basically among the banks we have close to 19% of the market share.
This excludes the capitals, capitals in Puerto Rico are not – don’t have a large presence but you do have the finance company owned by Wells Fargo as a subsidiary which is not including the bank’s exposure, the – which are actually the largest in the item.
When we talk about – I mentioned about the consumer, we see obviously a third quarter that was in general showed softer demands on the consumer, we really need to see what happened in the last quarter of the year, if that trends turn around or doesn’t.
But when you compare volumes with prior year, definitely the auto sales are down on new vehicles about 10%, if you add the used vehicles the estimated total reduction itself is about 30%. And I think it’s been mentioned by other competitors also.
Also obviously, when you look at purchase activity of credit cards and also your consumer loan demand it’s slightly down also. And mortgage obviously, we all know that it depends on rates, and it depends on refinance activity and it depends on the rules of the 80% of the volumes in Puerto Rico are conforming.
So it depends on the FDIC rules also, not only the local market. We saw some slight increase in the third quarter but we also been working hard to capture some of that conforming market share and obviously we’re – the market is basically longer but we got a better piece of the pie in the second and third quarters..
Okay. And maybe just one quick follow-up on that auto portfolio, I guess which I think about, and you talk about the new one and used a vehicle auto sales.
I guess, what part of that retail the billing in 50 would be consider new versus used in that in your current portfolio?.
Can you repeat the question, Brian?.
New versus used..
Yes, the new versus used break-out in your retail billing….
It’s about 70-30..
70-30?.
Yes..
Okay..
70% new, 70% new, 30% used..
Great. All right, thank you guys. I’ll get back in the queue. Thank you..
(Operator Instructions) Our next question comes from Taylor Brodarick with Guggenheim Securities..
Great, thank you.
Just two from me, I guess obviously with the agreements of regulators there are some limitations on using your kind of deploying all your access capital, just kind on your thoughts on really your sort of your preference for whether augmenting the platform or I don’t know, even buying back stock or I don’t know even doing a reverse stock split, just kind of curious how you rank some of your options going forward..
Taylor, can you – I’m sorry about it, we have a little difficult listening to the question.
The question was related to how we’re trying to use capital?.
Yes, I am sorry, if I had audio problem.
No, I just was saying looking at your excess capital that continues to grow, I know you’ve got some restrictions with the agreements with the regulators but absent that sort of what’s your thoughts on how to do best deploy that capital and also if you consider a reverse stock split just to get the share price a little bit higher..
I think at this stage as we – I think a couple of things are important. One, if we chart the opportunities as they come up and they are economically feasible, we continue to execute as we did in the last quarter. From a longer-term we are over $10 billion bank.
So that means we fall in the range of banks that have to file – that comply with DFA and find the stress test at the end of the first quarter. So I can anticipate no capital decisions would be made prior to completing that exercise and getting the feedback from the regulatory, yes we have room from the concern order limits.
And we have excess capital from that but obviously in a broader spectrum we need to consider the final outcome of obviously the exercise that we – all bank into $50 billion have to comply by the end of first quarter. And that’s – after that we’ll I guess we will be giving those to the market.
Obviously, priorities are in line with what some of the other questions, DTA coming to the table complying with DFA lower capital events that definitely we have to take into consideration. On the other hand our focus on the shareholder perspective if whatever options, in priority opportunities where business expansion are there.
We have a large infrastructure that we can afford some additional growth without really impacting expenses that much. So definitely our preferred choice to produce shareholder value we believe is additional business expansion in the territories that we have and that will be synergistic opportunities for expansion..
Great. Thank you, Aurelio. And I guess one last question you might have mentioned this when you talked about.
The PREPA exposure, but do you have any other detail about do you have conversations with three other banks and anything that you’ve heard about with new Chief Restructuring Officer, I guess any other detail on that process that you’ve heard?.
Those are price conversations and public information, it’s been published when the forbearance agreement was signed. I have to say that we feel optimistic about the way we see the working things moving together and having an objective of fixing the situation. Obviously, there is a lot of other valuables that are being considered here.
I think the trend of the cost of oil is positive for Puerto Rico and it’s positive for PREPA. And obviously we believe there are synergies and cost opportunities there too. So I think the only good thing that I can share that it’s really we see a good dialogue and a working relationship in moving the challenge forward..
Great. Thank you, Aurelio..
This concludes our question-and-answer session. I would like to turn the conference back to Aurelio Alemán for any closing remarks..
Thank you. I just want to like that, we’ll be presenting at the Bank of America Merrill Lynch conference in New York on November 12. We’ll also be meeting investors at the Sandler O' Neill Financial Services Conference in Naples in November 13.
And again, we like to thank you for your time and continued interest in First Bancorp and look forward to talk to you again..
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..