John Pelling III - IR Officer Aurelio Alemán-Bermudez - President and Chief Executive Officer Orlando Berges-González - EVP and Chief Financial Officer.
Brett Rabatin - Piper Jaffray Alexander Twerdahl - Sandler O'Neill and Partners Joe Gladue - Merion Capital Group Brian Klock - Keefe, Bruyette & Woods.
Good day and welcome to the First BanCorp Third Quarter Earnings Conference Call. 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 John Pelling, Investor Relations Officer. Please go ahead..
Thank you, Nicole. 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 2016. Joining here today from FBP are Aurelio Aleman, 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 the press release and the DFAST results that we published on Monday, you can access them under the IR section of at our website. At this time, I’d like to turn the call over to our CEO, Aurelio.
Aurelio?.
Thank you, John. Good morning everyone. Thank you for joining us again to discuss our third quarter results. On the call with me is Orlando Berges, our CFO, who will be discussing the details of the financials. So I am going to give you some highlights first. So please move to Slide 5 of the deck.
We are pleased that we posted another positive quarter of earnings, -- on the Under the model severely adverse scenario, which is important up to we are not currently in nor do we anticipate being in during the near future. Our pro-forma resulting capital ratios significantly continue to exceed regulatory well-capitalized requirements.
I think it’s important to highlight that this is a very sophisticated process that will continue to assist us in the capital planning decisions and ensuring the right – the proper right measures are in place for managing the portfolio risk. So let’s move to Slide 5 to a little bit on the loan portfolio highlights.
As I mentioned, we had good activity in our loan portfolio this quarter. We have implemented some growth strategies which we believe are prudent and we were seeing the results over the past two quarters excluding the charges that we took, our performing loan portfolio increased $32 million in the third quarter.
While we saw additional reduction in the consumer book in Puerto Rico, and we also sold a $20 million participation in a commercial portfolio in Puerto Rico to reduce single borrower concentration risk, on the other hand, Florida business activity drove the growth in our commercial book.
It is important to highlight that during the third quarter, origination volumes increased in all our loan categories commercial, consumer and resi and in all our three divisions, Puerto Rico, Florida and the US VI. I have to say that origination pipeline for the remainder of 2016 looks good. So we feel comfortable of sustaining good volumes.
We will continue to work hard to sustain the portfolio at current levels or above. As I mentioned before, it’s our goal to stay closer to the $9 billion and we are really hopeful that the commercial framework provides the opportunity to do that. Let’s move to Slide 7 to go over the deposits.
The deposits were relatively flat, but I think the metrics that that are behind it continue to move in the right path. Core deposit grew 45 in Puerto Rico and as we mentioned before, we continue to secure cost optimization strategies with actually show a decline in Florida and in VI.
We – importantly, we further reduced the reliance on broker CDs by a quarter billion - $251 million this quarter and now we reduced from 20% to 17% our broker deposits. So let’s move to Slide 8 to cover some Government highlights. We always like to cover the government exposure. This quarter it declined slightly by $11 million [ph].
As we said before, we continue to feel comfortable with the exposure on municipalities which is a large portion here.
This is – related to PROMESA, we are definitely pleased with the initial progress during the quarter on the PROMESA front as everybody is aware, parallel efforts are taking place on one side by the economic task force that’s commenced their activities during July. And on the other side by the recently appointed board that commenced during September.
We don’t expect much to happen from now through the end. It is early to anticipate results, but we do anticipate that we will all have more clear and transparent financial data on Puerto Rico government situation in the near future.
We also continue to monitor progress on the voluntary restructuring negotiations for Puerto Rico and in parallel, we are also doing the ground work on our TDF government guarantees to protect our rights under any potential legal scenario that may arise.
So now I am going to hand the call to Orlando to discuss in details on all the financials of the quarter. Thank you..
Good morning everyone. As Aurelio mentioned, we posted a net income of $24.1 million or $0.11 per share for the quarter. That compares to approximately $22 million or $0.10 a share in the prior quarter.
Assets as of September 30th were approximately $12.1 billion which is down $433 million from the June level mostly due to those voluntary repositioning Aurelio mentioned. This quarter, we used our $300 million of our cash in money market to repay $100 million Repo that matured in July. That Repo had a cost of 2.5%.
We also repaid $100 million in the home loan bank advances that matured in September. This one had a cost of over 93 basis points. And we are convenient to reduce the level of the broker CD portfolio. This quarter we had a $364 million of maturing broker CDs with all-in cost of 94 basis points.
We only issued $113 million with an all-in cost of 112, which is slightly higher and I will talk upon that on a couple of pages.
In addition this quarter, we decided to sell approximately $199 million of US Agency and MBS that carried a yield of over 236, because there is a large level of prepayments that these securities have experienced over the last few months. The sale resulted in an after-tax gain of approximately $5.9 million.
The provision for the quarter was $21.5 million, just slightly higher than the $21 million last quarter. The quarter – in the quarter we had an increase of $5.4 million in the provision for commercial loans.
Not being individually large, but there were some changes on the specific reserves and some of the non-performing loans and some increases in the always circled government exposures that we have.
Also, the provision for consumer loans increased by $1.6 million, which is mostly bodes on small loans affected by a couple of changes on the notes portfolio that we have got good value. This was offset by a reduction of $6.5 million in the provision for residential.
You might recall last quarter this cautioned we mentioned that residential provision included an adjustment for the impact of a revision to the Puerto Rico home price index that was done by the Federal Housing Finance Agency and also we had a change in the valuation of the purchased impaired loans that was booked last quarter.
The other large component you’d probably noticed at a higher level of taxes under the quarter. This was a bit more complicated under GAAP rules. We are required to make the best estimate of the expected effective tax rate to be applicable to the full year and use it for each quarterly tax calculation.
Obviously, this calculation is revised this quarter based on the updated results that we have or we expect for the year and but in our case it’s becomes a little bit more complicated because of the partial valuation of the DCA that we have that we have in FirstBank and affect some of the items.
This quarter we had some changes on the expected reversal of temporary differences that affect the calculation of the amount of - estimated amount of NOLs that can be used to offset taxable income for 2016 and these NOLs are the ones that are subject to partial valuation allowance. In part, this difference has to do with a charge-off.
As we told, the effective tax rate increased for the quarter and we had to book a retroactive effect as part of the calculation. This retroactive impact refers to the results of the first couple of quarters was about $1.2 million, which is almost equally intuitive to some of our per quarter for each of the quarters.
In the press release, we also disclosed a non-GAAP adjusted results which excluding the after-tax impact on the gain on the sale and some severance payments for job discontinuance we had in the quarter. So the adjusted number was $18.3 million.
If we were to adjust for the $1.2 million which is also a non-GAAP measure, the adjusted number would have been $19.5 million, which compares to a non-GAAP of about $21. 4 million last quarter, had the offset $4 that has resulted. If we look at some of the other components that net interest income is down $2 million for the quarter.
The margin for the quarter was 4.06% which is five basis points higher than last quarter and the expansion on the margin was primarily driven by the use of a cash balance has to repay the maturing broker CDs and on the Repo as well as a fourth quarter impact of the reverse repurchase agreement we entered into in the second quarter.
If we look at the components of net interest income, net interest income on investment securities came down by $1.7 million and $1.1 million of that relates to the higher premium amortizations that we had on US agency MBS resulting from the higher level of prepayments which was a significant impact.
Also, we had a $400,000 decrease because of the discontinuance of accrual of interest on the Puerto Rico government bonds, specifically GDB and Puerto Rico Building Authority. These two bonds were placed in non-performing status in the quarter.
As you know, the government has been making the interest payments, even though we have taken OTTI adjustments on the securities in the bank, but for the month of August, GDB did not executed the payment, the interest payment.
The Puerto Rico Building Authority payment due in July was gone, but the one in September was only coming in October was only done partially. So we ended up moving all securities although those two securities to non-performing.
On the loan side, we had a reduction of $1.1 million in interest income, which is a function of eight basis point decrease in the average yields basically, credit card reversals and some deferred fees we recognized last quarter on some prepayments of loans and a $49.1 million decrease in the average balance of loans.
Aurelio mentioned that loans – commercial loans did come up in the quarter and it’s a nature of timing through but we saw declines on the consumer side as the originations are not yet replacing the repayments.
On the other hand, in the quarter the reallocation of a cash on money market to reduce the brokered CDs under Repo resulted in an improvement of $900,000 in net interest income.
This is made up of $1.5 million decrease in interest expense on the brokered CDs under Repo, but offset by the $600,000 reduction on the money market interest income that we had – those monies were used to repay the Repo.
On the funding side in general, the cost of our interest-bearing deposits remained basically at the same level increasing one basis points and overall cost of deposit remain at the same level at 62 basis points.
Average brokered CDs and I’d like to point out that – Aurelio mentioned that brokered CDs came down by about $250 million on average reduction with 307 because of the reductions we also had that quarter but the average cost of the brokered CDs was up four basis points based on market cost of new issuance and also some increases in the average some of new CDs.
We – to the extent possible, we have been extended the term of brokered CDs for the purpose of interest rate risk management purpose. All interest-bearing liability, the cost came down by about one basis point.
It’s important to mention that one of the main – besides the repayments, one of the reasons for the sale of securities is that it’s in all it’s like the flexibility of renewing only part of $300 million in Repos, part or none depending on the circumstances, $300 million in Repos that mature in the fourth quarter.
In October, we have $100 million in Repo at a cost of over 3.40 that much sure and we had in the beginning of November we have to book $200 million more that mature at a cost of 394. So the funds obtained from the sale will be used to eliminate some of this high cost Repos improving – a net interest income from the reduction in the cost of funds.
Other income was up this quarter, again it was $26 million, large part due to the gain on the sale of the securities, the $6.1 million.
On a non-GAAP basis, if we exclude that gain, we had the offset net-interest income was $20.1 million for the third quarter, which is an increase of $300,000 from the second quarter, the levels of $19.8 million in the second quarter.
$300,000 was $600,000 increasing revenues from mortgage banking, basically higher level of sales of concerning paper originated and $200,000 increasing service from deposit accounts mainly corporate cash management fees which was offset by basically – again we had on the second quarter on sales of some real estate properties in the Virgin Islands.
On the expense side, as we have done, we have continued to identify opportunities where we can further reduce non-interest expenses. The obvious outliers are always the OREO and credit-related expenses that create a variability as we told because of the nature of our NPA book.
But for the quarter, we did achieve about $1.2 million reduction in expenses. This was $1.3 million of that reduction was in credit-related expenses.
$700,000 in OREO primarily related to lower write-downs to the value of OREO properties and we had $600,000 reduction in expenses related to troubled loan resolution and collection efforts as well as appraisals that’s mostly professional fees related to those.
The FDIC premium was down $1.4 million in the quarter, which is basically effect of the reduction in the initial base assessment rate that became effective by July 1 as well as an impact of reduced levels of brokered CDs and average assets for the quarter.
And we also had some reductions in business promotion expenses which is advertising and it’s timing basically of some of the expense of the marketing campaigns.
Offsetting some of these reductions was an increase in occupancy, basically electricity and some rental expenses and we have a $600,000 increase in employee compensation and benefits which include a $300,000 severance payment for some job discontinuance we did in the quarter and there were some increases – some additional $300,000 increase in incentive-based compensation.
Also in the quarter, we posted a provision for possible losses of unfunded loan commitments or audience facilities and letters of credit that are classified that resulted in a $1.1 million charge. We continue to work with the expenses and we feel that we have been achieving a lot of the plans and we expect to continue to reserve.
On non-performing assets, non-performing decreased $12.2 million to $744 million as of September, compared to $756 million. Non-performing loans however came down by $31.5 million to $606 million.
The decrease in non-performing loans was basically related to four large charge-offs on commercial loans totaling $22 million and collections that have been as keeping some loans were – are non-performing and interest is being applied to principal.
The impact in the quarter was – as I mentioned before, that we continue the income recognition on the GDB and Puerto Rico Public Building Authority bond. The entities defaulted under interest payment and the carrying amount net of the market all the components of income market valuation which is $20 million was moved to non-performing status.
You might recall that these bonds were previously classified in the second quarter of 2015 as adversely classified assets. The inflows to non-performing for the quarter was $50 million, which is a decrease of $27.6 million compared to last quarter. You might recall that in second quarter we had an inflow of $35 million in commercial relationship.
The commercial and construction inflows decreased by $34 million in the quarter and this was offset by some increases of $6 million in the residential portfolio. Adversely classified commercial and construction loans held for investment decreased by $20.1 million to $546.7 million as of September.
OREO increased slightly $300,000 which is a mix of the additions of – to the OREO properties of $15 million and a reduction of $12 million due to sales and there was $3 million in fair value adjustments in the quarter.
Charge-offs for the quarter were $41 million, 1.90% of assets which compares to $24 million in the second quarter and this increase was mainly related to $19 million in commercial and construction charge-offs.
As I mentioned before, large relationship totaling $22 million, of that amount, $18.3 million was already – was loan against salaries reserved in prior quarter. Included in this amount are a 13 – almost $14 million, $13.7 million associated with two of the TDF facilities.
These facilities we did anticipate taking charge-offs in the year, but the fact that government has not been making payments on the facilities in essence make them collateral dependent loans and we – based on collateral dependent loans we have to take the charge-offs on these two facilities.
The third facility has been kept current by the borrower, therefore no need to book that facility. The consumer charge-offs were slightly higher $500,000 in the quarter related to bulk sale I mentioned.
On the other hand, we had a $3.2 million decrease in residential mortgage loan charge-offs which is a impact in the prior quarter of f updated appraisals for loans evaluated for impairment based on delinquency and loan-to-value levels.
So, in essence that summarize the charge-off allowance ratio to loans held for investment decrease is 2.42% because of - again the charge-offs taken on, previously-established reserves which is – this 2.42% compares to 2.64% prior quarter. On the capital front, the ratios continued to grow as a result of the gains.
As you saw in the press release, our total capital is now at 21.3% and our Tier 1 capital is at 17.6%, leverage is basically at 13%. So all ratios continue to be high and as Aurelio mentioned, the DFAST results that have showed that we have adequate capital to sustain in adverse – severely adverse scenario.
The other thing I’d like to mention is that if you recall that last quarter we brought current the interest payments and reserves. We continue and we made the payments throughout this quarter. Now, I would like to open the call for questions. .
[Operator Instructions] Our first question comes from Brett Rabatin of Piper Jaffray. Please go ahead..
Hey guys. Good morning. .
Good morning, Brett. .
Good morning, Brett..
A quite a few things to – I guess, go over. Let me just first ask on the GDB bonds $35.6 million and you got a marked at $19.5 million.
How you come up with that valuation and how do we think about additional write-downs and then, maybe can you go over also the TDF write-down in the quarter, your thoughts on that position going forward as well?.
The GDB bonds are, Brett, just to probably $40 million of UPB and they are been carried at around $22 million. Those OTTI adjustments were taken in 2015 and some earlier this year.
For the analysis, we consider we assume a 100% default for our EPS as you know, we assume that few months ago, or few quarters ago and the valuation is done using some estimated recovery information which we wait which comes out from some reports that Moody’s has on the Puerto Rico market.
Moody’s updates that not every quarter, periodically when I guess when they feel that things have changed. So far, if you look at the value of the bonds that remain within a range of $0.20 to $0.25 per quarter. So we haven’t seen any significant change on the market on those bonds.
So we didn’t require any kind of valuation, additional valuations taken in the quarter. It would be difficult for me to tell you that there wouldn’t be any evaluation in the future.
Hopefully, if there is a settlement on the agreement, if you look at what the GDB we had originally put on the tables, it would be very close to what we are carrying the bonds, the bonds in our book. So we don’t want to see that, that for now, it depends a bit on what happens in all the negotiations.
So, again, we feel comfortable with today’s fact on the evaluation than we have on the bonds since we don’t have the intention to sell the bonds at this point.
On the TDF, going to your portion on the TDF, the issue with the TDF is, part of these are wholesale, part of the evaluation, it’s related to a real estate which is the value of the hotel and part was based on the TDF guarantee….
Or GDB guarantee..
GDB guarantee, which in some cases apply. So, we didn’t make the change anything on the provision. The estimate we had on values were the same this quarter as we had last quarter. But the big difference is that since, we don’t see where it’s going to end up at this point.
The TDF component, we needed to treat the loans as collateral dependent aforementioned and on the collateral dependent rules any kind of reserves that you have should be charged off when you feel that there is a possibility you won’t collect on the full value.
So, we ended up taking the charge-offs with the amounts we have reserved on those two facilities. The third facility is current.
So we didn’t have to – we didn’t move it to non-performing nor we had to take that component – I am sorry, we didn’t take that in charge-off, we saw that in non-performing, but we didn’t have to take any charge-offs because of the current status of the facility. .
Okay.
And then, just thinking about capital you are over 21% total risk-based, can you remind me what you have to catch-up in preferred and then any thoughts on potentially using that capital as it goes with the next year for share repurchases what is the climate for that?.
First of all, the preferreds have –.
$36 million of standing a preferred which – bringing in current would cost $2 million, $3 million. I mean, those are non-cumulative shares, so technically, we don’t know anything.
If we were to secure some capital actions on – in general, those securities would have – would require that 12 month payment be made – or although that 12 months dividend be paid, paying those dividends would be about $2.7 million to put them current as to a 12 month timeframe. .
So, regarding capital actions, I think, we have to think about that as a macro – as the macro evolves.
Probably, we continue to produce capital and improve the position and increase the cushion as data show, but to be honest, it’s going to depend on how the macro continues to evolve when we see Puerto Rico financial information, when we see more clarity on the fiscal situation and probably once we see the initial actions on the debt settlement from the Puerto Rico government.
So, I will say those are probably key milestones to make the regulatory environment feel that the macro is actually stabilizing and improving. .
Okay. And then maybe, one last one and I’ll step back.
Just thinking about the – kind of the outlook, are you concerned austerity potentially might have impact in Puerto Rico and does that affects sort of your thoughts on loan growth from here and looking forward to maybe make up the difference or any thoughts on potentially having a more positive tenor on under loan growth or NII.
I know you are doing a great job with the funding side on part of that equation. .
Well, I have to tell the information that we have at hand with the deal flow that we have at hand, we feel pretty good about the activity that is outgoing out there.
There is – the government has a fiscal situation and everybody is trying to understand how deeply they haul on the liquidity and cash flow, but on the other hand, we continue to see debt was coming in, the deal is happening, properties being acquired and business being acquired by new investors. So we are active in the market.
We – the consumer behavior is stable. We have taken down the consumer portfolio as a strategy because we have been conservative on risk. We are seeing some opportunities on the conforming mortgage business that we have taken and we are making the fees. So, we look at Puerto Rico as having 20% market share.
Now that having 50% market share of all the competitors, but when we look at the 20% market share, we’ll see how we have to grow in terms of reaching that 20% market share.
So – and then, as you mentioned, coupled with Florida, - continues to be excellent business activity and we are fully staffed, well secured and we are achieving our goals of every nation across the region.
So, I have to tell you, yes, there is risk in the market on the Repo – phase of the government liquidity, obviously that’s why it’s so important to monitor both the fiscal board and the economic task force recommendations. Those are the ones who could generate any other additional growth.
But, we have significant number of businesses and we still have 3.4 million people living in Puerto Rico and transacting everyday..
Okay, appreciate that color. Thank you..
Our next question comes from Alex Twerdahl of Sandler O'Neill. Please go ahead. .
Hey, good morning, guys. .
Good morning, Alex..
Hey, Alex..
First off, Aurelio, you mentioned in your prepared remarks that, you are implementing some new growth strategies in the loan portfolio.
I was wondering if you could elaborate a little bit on what those might be, if there is specifically in Florida or if there are also in Puerto Rico and sort of if there is an impact from those already or is that’s something that’s purely in the future?.
What, I think, we have the results, obviously, I would not tell my competitor my strategies. But, I can, obviously, we have – it’s a more focused sales effort reaching from the business, optimizing our channels and it really applies to all the products of the region. It’s not just Puerto Rico or Florida or ACR.
So from that perspective, it’s really a more focused and granular approach to basically in sales or it’s including the loan origination piece of the equation. .
Okay, and then, Orlando, you gave some good color on what was going on in the tax rate.
But can you just boil it down for us to tell us what the tax rate should be in the fourth quarter and then also for 2017 based on your current projections?.
The tax rate, if you look at the year-to-date tax – effective tax rate, remember, Alex, the complexity advance resulted, the valuation allowance on the DPA and the fact that each company – each of the subs were at their own packed structure, because they are independent of each other.
For 2016, if you take the year-to-date number, which should be in that 25.5% more or less range. It’s a good estimate of what we think at this point, it’s going to be the effective tax rate for the year.
This year, we did have a couple of things that are – none has already typical and like for some of the cancellation or the repurchase of some of the stocks at the beginning of the year that enters the holding company which has limited revenue. So it offsets some of the revenue that the holding company had to provide some benefits.
We obviously had these gain on sale which part of it is in the international banking entity which has a different tax status. So, at this point, I would say that, 2017, it’s probably going to be in that range of 26% to 30%..
26% to 30%. Okay..
Yes, I need to get off that, all the updated numbers, because, again, depending on how much you use or some of the items that have partial valuation of DPAs could change a bit the rate up or down and that’s what complicates the basic calculation from quarter-to-quarter.
Once you are off to the third quarter of the year, you more or less know what’s going to happen so it’s easier. But, going forward 12 months it’s going to be more complicated. .
Very good.
And then, can you share with us what early-stage delinquencies were at the end of September?.
Oh, yes, sorry. I forgot to mention that. Early-stage delinquencies were up in September versus June by $41 million. Basically it was two cases on – it was all in the commercial side, it was two cases that we have with what we call technical delinquencies as those two cases mature or expire that facilities and had to be renewed.
They should have been renewed by September, but the process of completing with the customers has taken longer and therefore, technically, there are past due because of the past due on the principal side. Both are carrying up to payment. One is going to close this week.
The other one I am still trying to get a date of when it’s going to close finally, but those were the two – the two facilities that changed number. On the other components, we are basically the same as last quarter. .
Okay, and then just finally, can you give us expense runrate expectations going forward?.
We, I mean, we continue to think it’s going to be below 90. The variability of the credit-related affects a bit the number. If you take that one Alex, it’s I think the running rate today is fairly consistent with what we expect for next quarter taking out the OREO, and OREO we are hoping to stay at similar levels that we had in the last two quarters. .
Okay, great. Thank you very much for taking my questions..
Thank you. .
Thanks Alex..
Our next question comes from Joe Gladue of Merion Capital Group. Please go ahead..
Yes, hi, good morning..
Hey, Joe..
Hi, Joe..
Let me just follow-up on the expense question a little bit – little more detail. You mentioned, there was some severance cost in the third quarter.
So just wondering if there is some expense savings associated with that?.
Yes, the severance payment of $300,000 and this – the positions – there were not many positions, it was related to some specific positions and those positions are not being replaced. So, clearly there is going to be some savings going forward on the cost of those positions.
Part of the savings we already saw on the third quarter because it was done like two-thirds of the – like at the end of August. So we saw part of it, but clearly, it was only three positions that we eliminated, Joe. .
And actually, I think my other question has been answered. Thanks. .
Thank you, Joe. .
Thanks, Joe. .
Our next question comes from Brian Klock of Keefe, Bruyette & Woods. Please go ahead..
Hey, good morning guys. .
Good morning. .
Good morning. .
So, I joined on late, so I apologize if you guys have already addressed this, but I noticed that or I didn’t seem like PREPA Fuel Line has been moved into out for sale or anything like that.
So I just was wondering, with what your peers have done with their PREPA Lines, wondering what your thoughts are and what your plans with that relationship?.
We continue to receive interest payments and we continue to apply those to principal. The most recent one in early October. We continue to monitor the progress on the RSA. The RSA expired or is due for renewal, will be due for renewal in December, it doesn’t closed by December.
We continue to feel optimistic that the deal will move through the challenges that I presented, PREPA, it’s pushing for it and it’s – really the last step of the PREPA restructuring, but it’s a very good step toward making PREPA as an entity.
So, for now, our position is that we’ll continue to receive monetary situation apply the payments to principal and hopefully we see that is closing by the first quarter at least. .
Yes, we don’t – we haven’t had an intention to sell it, that’s why we haven’t moved any..
Got it.
Okay, I mean, if that goes well in the RSA, then there is a potential then that could be returned to accrual status, but maybe mid to second half of next year?.
Yes, the perception closes and they show that they are going to continue making the payment according to the agreed upon terms. Once you have the general rules, once you have gone through the six months of performance and there is no indication that something has changed in the business. Definitely, we could start moving into number two performing..
Okay and, again, I apologize if you guys addressed this already.
I notice that you did do some de-risking of the balance sheet in the quarter, but just looking at the migration into NPLs is a pretty meaningful improvement on the commercial mortgage side in the quarter and overall much lower with C&I and both C&I and commercial real estate inflows being lower.
So, you think you are seeing some more stabilization in the commercial credit spend in Puerto Rico despite, like you said all the negative headlines we read about the economy?.
Well, there is obviously some stabilization, but remember, we still have some chunky credits we try to book that are on the substandard authority.
So, I think we mentioned this before, every quarter we continue to monitor reassess and obviously, we see positives in some of the activity that we are seeing, but we have to monitor it closely any government dependence that could impact any – asset re-pull effect that could impact of those borrowers that are in the substandard authority which are obviously the ones that could move to an adverse category of non-performing.
So far, so good, I can tell you..
Thanks for taking your time. Thank you..
Thank you, Alex..
Thank you, Alex..
[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to John Pelling for any closing remarks. .
Thank you, Nicole. Thank you for interest in First Bancorp. During the fourth quarter, we have a few conferences, Bank of America Merrill Lynch Conference in New York in November 17th. We will be attending the Sandler O'Neill Conference in Naples on November 17th and then the KBW Investor Field Trip to Puerto Rico, December 12th and 13th.
So we look forward to seeing you then and thank you for your interest. This will conclude the call..
Thank you all..
Thank you. .
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..