First BanCorp (FBP) Q4 2021 Earnings Call Transcript

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First BanCorp (NYSE:FBP)Q4 2021 Earnings CallJan 26, 2022, 10:00 a.m. ET

Prepared Remarks:

Operator

Hello. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the First BanCorp. fourth quarter 2021 results conference call.

All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. [Operator instructions] Thank you. Ramon Rodriguez, head of investor relations, you may begin the conference.

Ramon Rodriguez -- Head of Investor Relations

Thank you, Bailey. Good morning, everyone and thank you for joining First BanCorp.'s conference call and webcast to discuss the company's financial results for the fourth quarter and full year 2021. Joining you today from First BanCorp. 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 SEC 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, you can access them at our website at 1firstbank.com.

At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

Aurelio Aleman -- President and Chief Executive Officer

Thanks, Ramon. Good morning to everyone and thanks for joining our earnings call today. Let's start by moving to Slide 4. We closed 2021 with another record quarter for the company, clearly reflecting the strength of the franchise and also combined with the improved economic backdrop in our operating markets.

During the quarter, we generated $73.6 million in net income or $0.35 per diluted share and importantly, I think a record $104.9 million in adjusted pre-tax pre-provision income. Asset quality continued to trend the improvement trend that we had during the year, now non-performing assets reaching a decade low of 0.76% as a percent of total assets, driven by repayment of several non-accrual loans and REO sales and obviously less migration. The ratio of the ACL for loans and finance leases to total loans decreased to 2.43% during the quarter driven by combined factors such as reduction in the residential mortgages as well as reductions associated with improvement in macroeconomic factors and their impact on qualitative reserves. In terms of expenses, the efficiency ratio continued to trend down now to 52%.

I have to say this is a historical low compared to 53% registered during the third quarter. On the capital front, we continued executing our capital plan, returning capital to shareholders. During the fourth quarter, we raised the common dividend by 43% to $0.10 per share. We repurchased 4.6 million common shares amounting to $63.9 million.

And we also executed the announced redemption of $36.1 million of outstanding preferred shares. Happy to say that we ended the year with a very strong capital position, 17.8% common equity Tier-1, leaving ample room for further capital deployment initiatives during 2022. Let's move to Slide 5 to provide some detail on the deposit and loan performance. The loan portfolio slightly decreased in the quarter by $75 million, mostly driven by $73 million reduction in SBA PPP loans.

Also, we have four -- we experienced four large commercial repayments of relationships from Florida and Virgin Islands, which amounted to $125 million. And we also experienced a reduction of $112 million in the residential mortgage loans that sit in the portfolio. These reductions were partially offset by, I would have to say, quite strong auto and commercial origination both in Puerto Rico and Florida. And despite this slight repayment, the commercial portfolio grew by $59 million, turning the corner, hopefully, as we continue to move on into 2022.

Loan originations for the fourth quarter were also quite strong with $1.4 billion, including credit card utilization activity. It's really the best quarter we have had this year, again with strong originations in Puerto Rico and Florida. And to say that we closed the year with a very strong pipeline, actually the stronger pipeline coming into the first quarter of the year. Definitely, loan portfolio balances remain impacted by excess liquidity and these pay downs.

I think with rate markets moving up, this should diminish. On the other hand, loan originations continue to be strong. And we're very focused on our strategy for growing the portfolios centered around increasing consumer and commercial books while continue to focus in the conforming residential mortgages that as we have done over the past year. In terms of deposits, core deposits continued to grow, but as expected, at a slower pace compared to prior quarters.

Over the next few quarters, we expect a reduction of approximately $150 million of government deposits from the recent bankruptcy settlement. That should happen probably second quarter, I will say. Excluding brokered and government deposit, core deposit did register an increase of $64 million during the quarter. I'd like to take an opportunity, before handing the court to Orlando to provide a summary of the year, so let's move to Slide 6.

Definitely, the core results for the company reflect the transformational progress that we have in multiple fronts in 2021. We generated $281 million of net income or $1.31 per diluted share compared to 102.3 in prior year. We registered a 30% increase in adjusted pre-tax pre-provision income. And we grew total loan originations and renewals by 20%, excluding PPP and credit card activity when compared to 2020.

I think moreover, new money, commercial and originations, including closed and unfunded commercial and construction loans grew by 50% when compared to prior year. I think it's important to comment that over 75% of the construction loans that we already made in 2021 are expected to partially fall in 2022. So they did not fund it in 2021. And importantly, during the year, we returned capital equivalent to 112% of earnings, again in the form of repurchase of common, redemption of preferred and dividends.

Key to the efficiency ratio, we completed the timely integration of the acquired operations during the year. We executed on all the operational efficiencies that were planned as part of the transaction and did achieve the established financial targets of the transaction. Again, the transaction allowed us to expand our footprint, strengthen our leadership position in the market in Puerto Rico. Importantly, we have invested significantly in our digital capabilities.

The pandemic triggered an accelerated adoption of digital channels, which did continue to grow significantly, digital engagement improving across all our digital functionalities. We also, during the year, reengineered the auto lending origination process by deploying a fully digital platform to our dealer network, allowing us to offer a complete digital experience. I have to say that additional investments in technology and digital operations are planned for 2022 in order to continue improving our competitive position in an increasingly digital environment, which we have great progress in 2021. On the macro front, we are in the initial stages of a growth cycle in Puerto Rico.

The recent announcement of the resolution of the debt restructuring process should allow for the government to focus their efforts toward supporting economic growth initiatives and capitalizing on a large amount of obligated disaster relief funds that need to be deployed. Like other jurisdiction, COVID cases increased recently, driven by the Omicron variant. However, our quite high vaccination rate provides for an important safety net to withstand any impact in the healthcare infrastructure and economic activity. We are confident that the positive backdrop in our operated that should result in increased loan demand in 2022.

So with that, that's summary, I'd like to turn the call over to Orlando for more details in the financial results. Thanks.

Orlando Berges -- Executive Vice President and Chief Financial Officer

Good morning, everyone. Aurelio mentioned, we had very strong 2021 results. Net income was $281 million, $1.31 a share. That good results included improvements of $130 million in net interest income and $10 million increase in other non-interest income.

Remember that the Santander operation, the acquisition was completed on September 1, 2020. So we had four months of Santander versus this year we had the full year. And as he also mentioned, it reflected on pre-tax pre-provision improvement, significant improvements. We went from about $300 million in 2020 to $392 million in 2021, so a significant pickup.

Fourth quarter results were also very strong. We also made reference to $73.6 million in net income, $0.35 a share. The provision for the quarter was in fact the net benefit. We had a $12.2 million benefit, very similar to the $12.1 million we had in the third quarter.

And again, it's overall driven by improvements in macroeconomic variables, which is both the actual and the expected and I'll touch a little bit more on the reserve later on. The expenses for the quarter were $2.6 million lower than in the third quarter. However, we had an increase in income tax expense, with a higher level of income resulted in a change in or an increase in the mix of taxable to exempt income. And effective tax rates went up by 7 basis points for the full year, resulting in an increase in taxes on the -- throughout the year.

Net interest income for the quarter was $184.1 million. It's slightly lower than last quarter, but margin improved 1 basis point to 3.61%. The yield on the portfolio, the GAAP yield on the portfolio was 6.34% for the quarter, very similar to the 6.33% we had last quarter. And loans, if we look at the mix of earning assets, loans continue to represent approximately 55% of average interest-earning assets.

The overall cost or the cost of interest-bearing deposits, excluding broker, it's now 30 basis points, which is 3 basis points lower than last quarter. We look at what's happening now, the recent increase in market rates will provide us an increase in yields for variable rate loans. Approximately 40% of our commercial portfolio is tied to LIBOR and another 19% is tied to prime. And we have already seen a little bit of pickup on three-month LIBOR, which is the main variable that is used.

The other factor, significant factor, is the reinvestment of maturing securities should also provide some pickup. If we look at current rates versus what we were reinvesting, we foresee an increase of somewhere between 40 and 50 basis points on reinvested money as compared to the fourth quarter. Clearly, this doesn't mean that the whole portfolio will go up by this amount, but will help in start getting that overall yield of the portfolio up. If we assume the mix of interest-earning assets remaining at these levels and the trend -- the expected trend on interest rates, we do foresee some increases in margin in the next few quarters.

However, as Aurelio mentioned, we had the reduction in the mortgage portfolio as we continue to originate much higher percentage of conforming paper. Therefore, margin mix gets a little bit affected. Non-interest income for the quarter was fairly similar, slight increase as compared to the third quarter. We had increases in fee income and service charges on the assets, which was offset by some decreases in the revenue of mortgage banking activities.

We ended up selling less of the conforming portfolio based on the level of originations that we had done in the prior quarter. On the expense side, expenses for the quarter were $111 million -- $100.5 million, which compares to $114 million in the third quarter. In the fourth quarter, merger expenses were $1.9 million. Our costs what remains, which is mostly related to four additional branch consolidations that we'll be completing during the first half of 2022.

Last quarter, merger and restructuring expenses were $2.3 million. And at this point, we basically have completed everything related to merger expenses. There shouldn't be any component of this going forward. Overall, as you all know, expense levels have been decreasing in the last couple of quarters as conversion- and integration-related expenses have been eliminated and we have continued to achieve or implement the savings from the integration of the acquired operation that we have discussed in the past.

However, in reality, expense levels have been running at a lower clip than what we expected to be a normalized level. And two main factors, one of the main one has been the level of personnel vacancies that we have had throughout the last few quarters. At this point, we're running twice as high in vacancies from a normal level, in part related to the funding support the government has provided and has created some market shortage. To compensate, we have -- at the end of 2021, we started raising the minimum salary to branch and call center personnel.

The impact of that increase will be approximately $1.4 million per quarter starting now in this first quarter of 2022. And we expect that this increase in minimum salary, combined with some of the other ongoing recruiting efforts, should help bring some back normality due to the vacancy levels. Once vacancy levels are normalized, compensation expense should increase somewhere in the neighborhood of $1.5 million per quarter. Obviously, we don't expect to achieve these levels until later in the year, most likely toward the end of 2022.

The expense levels also, we have had the benefit of the increase in property prices in the Puerto Rico market, which has provided us the opportunity to improve the disposition value of the OREO properties. That has been offsetting OREO operating expenses. In fact, we achieved $2.3 million net gain in OREO in the third quarter and additional $1.6 million net gain this quarter. Traditionally, this is not what happens.

There is always the operating cost of handling and disposing reprocessed properties, but the market has provided some opportunity. This will be -- realistically this will eventually go back to more normalized levels. The other component in expenses that we are currently in the process of completing -- the reconfiguring centralized facilities to complete the physical integration of all the operating units, that's ongoing, but not completed yet and it's going to take a few months before it's completed. And also, as we have mentioned in the past, we continue with several technology projects that are underway.

Most of these costs are not yet reflected in the quarterly expenses. That's why we still believe that on a normalized basis, expenses will be in that $117 million to $119 million range. But clearly, we won't see that until later in the year. The first couple of quarters of 2022 should run at a lower clip.

Efficiency ratio in the quarter as a result -- that Aurelio made reference was 52%, which is lower than anticipated. However, even normalized expense levels will take us to our target ratio of 55%. So we feel comfortable on the expense levels and efficiencies achieved, not considering any further improvements in -- on the income side that should also help the ranges. On asset quality, just to touch up on Aurelio made reference to, the non-performing asset decreased by $14 million, as you saw, continued the trend.

On NPA, the non-performing assets in total, that stand below 1% at 76 basis points of assets. And then $6.8 million of that reduction was in nonaccrual commercial construction loans. We ended up selling a $3.1 million non-performing construction loan in Puerto Rico. Inflows continued to be low.

They were $2 million lower than last quarter, $15 million this quarter as compared to $17 million last quarter. On the allowance, Aurelio also made reference to the allowance, at the end of the quarter was $180 million. It's $20 million down from the third quarter. Looking at allowance just on loans and finance leases was $269 million, which is $19 million down.

Basically, the allowance reduction reflects improvement and continue to be projected on macroeconomic variables that are on all the variables that are used to calculate ACL. However, we are monitoring closely the impact of the Omicron variant. The number of cases have increased significantly, especially that impact on customers in the hotel, transportation and entertainment industry. And we are considering those as part of the qualitative assessment that we do on the establishment of the reserves.

The ratio of the reserve continues to be strong. Aurelio mentioned that we stand at 2.43% in the last quarter. On the capital front, just to touch it again, we continue with the execution of the capital plan. For the fourth quarter, common stock repurchases and the redemption of the preferred shares were $100 million.

Throughout 2021, we have repurchased 16.7 million common shares and redeemed the $36 million in preferred, totaling $150 million in capital actions for the year on top of the $65 million that were paid in dividends. However, even with the execution of the capital strategies, the strong earnings are maintaining our capital ratio significantly well capitalized. As you saw in the chart, Tier-1 common equity moved slightly up from 17.7 at the end of the first quarter, which is just before we started with the capital repurchase to 17.8 at the end of the year. And Tier-1 capital just decreased 2 basis points from 18% to 17.8%.

So we continue to have ample space for capital action, as Aurelio mentioned before. With that, I would like to open the call for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from Ebrahim Poonawala from Bank of America. Ebrahim, please go ahead.

Aurelio Aleman -- President and Chief Executive Officer

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Yeah. So I guess, Orlando, I just wanted to first start with expenses. So there should be a $1.4 million increase in 1Q from the minimum salary and wage increases. And then you talked about getting to a $117 million to $119 million range by the back half of '22.

Is that correct?

Orlando Berges -- Executive Vice President and Chief Financial Officer

Yes. If you take the numbers, the $111 million this quarter, it was really about $110 when you take out, $110.5 when you take out the restructuring costs. And you can hear me?

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Yes, I can hear you.

Orlando Berges -- Executive Vice President and Chief Financial Officer

OK. So we're saying about $1.4 million, it's definitely already there. There's going to be a little bit of increase that normally happens in the first quarter related to all the payroll-related expenses. I mean, the payroll tax-related expenses since all the counters are reset starting the year on limits.

And then clearly, we don't -- that $1.9 million benefit we had on occupancy -- meaning on OREO expenses, that should add back because we don't foresee that's going to continue to happen consistently. A lot of it has to do with properties that were moved when prices were lower at appraised values at the time and now we're being able to execute at better prices. So that's why, clearly, that is the message, it's going to be building up a bit. And as we close the gap on what I call close the gap on vacancies, which is too high at this point, that should also add some expenses in the quarter.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. I guess -- so that's clear. What I'm trying to reconcile is, you mentioned you think efficiency ratio can get to 55% and from what was about 52%, I think, reported for the fourth quarter of '21. So are you -- is the 55% just a target, but you're going to operate much lower? But I'm trying to reconcile, maybe give us a little perspective on the NII.

Do you see the NII growing from here? And how much of margin expansion do you expect from those hikes? I know you mentioned the floating rate book, but you also mentioned the pressure from adding more mortgage loans to the balance sheet. So give us a sense of where the NII is headed and how we should think about that 55% efficiency ratio.

Aurelio Aleman -- President and Chief Executive Officer

Yes, I just want to comment, this is Aurelio, Ebrahim. I think the 55% obviously it's a performance target, we always work toward doing better than that, which has been the case for the last couple of quarters. Obviously, we don't want to mislead, there's still expenses coming into the line. Some of them also are related to new business volume.

So yes, revenues should move in parallel. Obviously, not at the same proportion. So we model the business, we model the pricing to ensure that we meet targets that are competitive. And also that relates to how much we invest.

So obviously, again, the performance metric of 55% is a high level one, but we always work toward trying to do better than that, which again has been the case. But -- but I think what Orlando provided detail on what are the variances that are showing this fairly lower number, as you know, as we mentioned before, we don't want to underinvest in the franchise and the growth opportunities. So this is a balancing act. Hopefully, at the end of the day, we would like to stay better than the 55%, but obviously, the business is modeled considering that's the target, yeah.

Orlando Berges -- Executive Vice President and Chief Financial Officer

Yeah, on your -- the 55% again, it's -- if you take that guidance of $117 million with current revenues, we're basically there. You made a good point, which is the one component that with rates, the way they are moving, we foresee the repricing of assets happening faster than the repricing of any liability. It's going to take a little bit of time. Obviously, the investment pickups that we'll get are going to help, but we still have much lighter portfolio than what we invest every quarter.

And there are some normal repayments on higher-yielding investments we had from the past. And obviously, the repricing of the commercial portfolio, we'll start to see with SOFR or LIBOR going up, both of them, as we migrate to SOFR, which is the main variable we're going to be using. So how much is the pickup in margin? I'm a little bit hesitant to give you now. I feel comfortable it's going to go up.

How much? It's -- we need to see how that shifts on some of the mortgage components and the speed of the reinvestment.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Understood. And just -- so we have the balances for PPP outstanding at the end of the year. What is the fees remaining that you'll accrue as those balances are forgiven?

Orlando Berges -- Executive Vice President and Chief Financial Officer

I don't remember the number, Ebrahim, I don't have it on the top of my head. I can get you -- this quarter was about $1.5 million lower than last quarter. Part of it is also because of the acceleration with less repayments. It was accelerated.

I can get you that number. I don't remember the quarterly amount of normal amortization of the fees from the top of my head because it's mixed up a bit sometimes with the repayments, but I'll get that information and make sure everyone gets it.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

That's fine. And just one final question around capital return. I know you've sort of submitted the plan. Maybe you're talking to the regulators.

Should we expect a bigger buyback over the next 12 months relative to what you are about to complete for the last 12 months?

Aurelio Aleman -- President and Chief Executive Officer

Our timeline is similar to last year. We should announce our capital actions some time during April when we report next time, as we did last year. So it's in progress. Obviously, you saw what happened over the last 12 months.

We're basically completing the plan, the $300 million and we basically are at the same place where we started. So I think it's logical to assume that going further, we -- our goal is to sustain what we recently accomplished during 2021. So -- but I cannot give you an answer, it's going to be bigger or better yet. We have to wait until April that we announced and we conclude on the process.

Remember, we also are looking to achieve balance sheet growth during 2022.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Noted. Thanks for taking my questions.

Operator

Thank you, Ebrahim. The next question comes from Tima Brazilla from Wells Fargo. Tima, please go ahead. We seem to have lost Tima, so we'll go on to our next question, who comes from Alex Twerdahl from Piper Sandler.

Twerdahl, Please go ahead.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

Thanks. Good morning.

Aurelio Aleman -- President and Chief Executive Officer

Good morning, Alex.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

Just wanted to drill in on some of your comments, Aurelio, on the outlook for growth. And one, I guess, to start with, I think you said 75% of commercial loans that have originated in '21 will fund in 2022. I was just wondering if you can give us a little bit more clarity on sort of how we should think about the progression of those disbursements and sort of the sizes that are potential based on what you've done so far?

Aurelio Aleman -- President and Chief Executive Officer

Yeah. I did say construction loans, OK? 75% of construction loans. And we did about $200 million in 2022 -- in 2021 of the construction loans. And we expect that most of it be funded by the end of 2022.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

OK. And have you started some of the projects that we've talked about in the past, the projects related to the community development block grant by the IPG and the R3 and the law on tax credit. Have any of those -- I know you've been working with some potential customers on taking advantage of some of those programs. Has any of that started to be disbursed yet or maybe you can give us an update on sort of when we could expect some of the disbursements associated with some of those programs.

Aurelio Aleman -- President and Chief Executive Officer

Yeah. Some of those programs, some of them are being approved by credit already and we passed the filter and the great evaluation. And obviously, they're in the stages of beginning to close. And I think it's going to be through the year, very difficult to say second quarter, third quarter, fourth quarter.

But we should start to see that this year, some of that this year.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

OK. We all look forward to seeing some of those loans come online. A couple of more questions from me. Just when I look at the net fee income, it looks like the service charge fee kind of popped up.

Is that due to seasonality or is that at a more sustainable level?

Orlando Berges -- Executive Vice President and Chief Financial Officer

That is not so much seasonality, the one on deposit accounts, you mean or you mean the other one? Because the credit card fee kind of income, there is a little bit of seasonality because obviously you have increased purchases on the last quarter. But on the deposit accounts, that's more of an ongoing kind of thing at the level of normalization on the operation, the type of transaction. And so we're seeing that with -- also combined with the increase in deposit accounts. But that's more of a normalized kind of fee generation.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

And then just back to expenses, you're running at sort of double the level of vacancies. And I know that you don't want to underinvest in the franchise. But you've obviously been doing pretty well with even an elevated level of vacancy. Do all these positions have to be filled? I mean, maybe you can run with just kind of a more lean workforce.

Aurelio Aleman -- President and Chief Executive Officer

Well, it's part of our day to day job to try to be as efficient as possible. So believe me, there's a lot of discipline behind how we go about the hiring and the quantitative and qualitative factors behind it. So -- so definitely, we always look for opportunities and some of it could be linked to volumes. And it's variable if volume comes or not.

And so it's a whole sort of decisions behind it. But the way we design it, to achieve those, if those will be needed, a portion of those.

Orlando Berges -- Executive Vice President and Chief Financial Officer

And keep in mind that we have the challenge of the Omicron variant and we lose people for a few days every so often now and that affects service. So we need to keep that. We want to make sure that service is not affected.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

Got it. And then just also on expenses and I know that you're kind of expecting that normalized run rate toward the back half of the year. You said there's some tech investments that haven't started to amortize yet or be capitalized yet. Do you have a sense on when those will come online so we can kind of just figure out sort of the pace of expenses over the next couple of quarters?

Orlando Berges -- Executive Vice President and Chief Financial Officer

Yes, there are two fronts there. Number one would be on the facility side. We've completed some projects that are going to be done probably at the end of this month, beginning of February. There is a little bit there.

And there is a second chunk that is going to be completed in the second half. So full effect on facilities is probably going to be seen on the second half of the year. What I mean it's going to be completed in the second quarter, I meant to say, but some of these full implications would happen in the second half of the year. In the case of technology projects, it's a combination, because there are some projects that we're starting that have a larger component that is expense-based.

So they will happen, they will start happening some time at the end of February, beginning of March as we roll with some of the projects we had. The ones that are being capitalized, we wouldn't see the impact until clearly, the -- probably the fourth quarter or end of the third quarter. That's why the normalized component, I believe the first couple of quarters, would be lower than that guidance. And then we'll start getting through our guidance by the end of the year.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

OK. And then just one final question, just going back to loan growth and just the residential portfolio. Do you have a sense for -- or can you give us a sense for the amount of that residential runoff that was refis versus just sort of a normal amortization of that portfolio?

Orlando Berges -- Executive Vice President and Chief Financial Officer

I'm trying to remember the numbers, Alex. Remember, what's happening with refis is that a lot of loans are qualifying for FHA, funny kind of programs now with the levels. But I can't recall from the top of my head. I need to get for you that also, what's the normal repayment on the existing portfolio, so I can give you a better indication on that.

Alex Twerdahl -- Wells Fargo Securities -- Analyst

OK. Thanks for taking my question.

Orlando Berges -- Executive Vice President and Chief Financial Officer

Thank you, Alex.

Operator

Thank you, Alex. Our next question comes from Tima Brazilla from Wells Fargo. Tima, please go ahead.

Unknown Speaker

Hi. Good morning. Sorry about the technical difficulties earlier.

Aurelio Aleman -- President and Chief Executive Officer

No problem. How are you?

Unknown Speaker

Good. Thank you. Maybe just circling back to the last question. More broadly on the resi runoff, when does that subside? Are we getting pretty close in the cycle now where we're going to start reaching an inflection point in that portfolio, will it at least go from being a headwind to overall loan growth?

Aurelio Aleman -- President and Chief Executive Officer

Yeah, let me take that. Obviously, there is many factors in the movement of the portfolio overall. In the resi, definitely higher -- if you look at rates, what happened in the last 30 days, definitely, there's a shifting of -- there's going to be a shifting of the reduction in refi. At some point in time, we were like 55% refi, 45% new money.

That will definitely shift now on the refi side and it's driven by the rates, it depends on the speed. But there's significant movement happening in the last -- since the late December to January. So we should start seeing that in the origination side this quarter, I expect and we can provide more detail next quarter. The -- but then you have -- there's an element that the -- on the other hand, the levels of conforming, the levels of mortgages in terms of dollar amount, maximum amount of mortgage also which adjusted up.

So some of the mortgages that were nonconforming could become conforming now by that factor. So it's a combination of factors that could take that. Obviously, I think we have record levels prepayments on the mortgage portfolio because of the rates, that should not be present in 2022. Same thing happened in the commercial book.

When you look at the originations of the quarter or the year, they were truly quite strong. The challenge was the commercial book received significant prepayments, which again we also expect those to reduce going forward. And then you take the consumer sector, auto is very strong. And when you look at credit card activity, it was actually very strong in the year in terms of origination activity, but also we have very high prepayments of those balances.

So I think in the overall, what we are working toward growing the loan portfolio this year, we feel fairly confident that, that will happen. And obviously, because of the different initiatives, pipeline and actions that we're taking in the business side. Obviously, last year, we will also spent a lot of time in integration activities, management focus. Management focus now is really growth.

So I think those are the elements. I cannot give you specific numbers, but I can give you what are the drivers. I can talk about the drivers in each of the different business that is giving us a lot more confidence this year for achieving loan growth.

Unknown Speaker

That's great color. Maybe switching gears, looking at the allowance ratio and putting that kind of into context with the expectation for -- hopefully for accelerating loan growth. I guess how are you thinking about further economic improvement as a backdrop in CECL. The near-term blip, hopefully with Omicron kind of slowing that improvement and then the ability to further reduce allowances and have new loan growth kind of eat into the allowance and then maybe even reduce allowances on top of that.

How should we be thinking about allowance levels going from here?

Orlando Berges -- Executive Vice President and Chief Financial Officer

OK. The challenge is Omicron, to be honest. But in terms of -- we do have qualitative components on our reserves. If Omicron -- the expectation is that we have in the market is that Omicron would be a temporary impact, assuming no other variants show up.

And that would help keep or get the trends on improvement back. If that's the case, we will see some reductions in reserve needs on existing portfolios obviously added for next year. We do believe that we won't see the level of releases that we had last year. A lot of 2021 releases also had to do with the fact that we all were facing significant possible implications from COVID in 2020.

But clearly, we still feel that we would have provisioning levels that are lower than what would be a normal trend on a year in 2022. But not -- over the year, we won't -- we don't expect to see the level of releases clearly that we had this year.

Unknown Speaker

OK. And then last question for me on credit. Obviously, we had some NPL sales in the third quarter. Broader asset prices continue to do quite well and continues getting favorable attention.

Is there any incremental opportunity to sell off some of the troubled assets here at these levels and kind of further improve the asset quality of the franchise or was much of that taken care of in the prior quarter?

Aurelio Aleman -- President and Chief Executive Officer

It's something that we constantly with the eyes open. It's been a lot of that over the last years, as you see in the chart. And obviously, the investor interest continues to be positive in the island. Values is reflected in the values.

So again, we always have the policy that we trade at the right price in general. So there's not a lot more to dispose, to be honest. And it will continue to be individually as prices come in and out on things that are in the for-sale category.

Unknown Speaker

Great. Thank you for the questions.

Operator

[Operator instructions] We now have a follow-up question from Ebrahim Poonawala from Bank of America. Ebrahim, please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Just one quick follow-up. Aurelio you mentioned $150 million runoff coming out of the restructuring that you expect some time in the second quarter. Is that essentially the magnitude of runoff that you expect as a function of the bankruptcy, is it or are there more deposits that could leave the balance sheet once all is said and done?

Aurelio Aleman -- President and Chief Executive Officer

No, that -- regarding -- related to the bankruptcy, that's it. That's what we have. We don't have the famous treasury account is not in our balance sheet from the Department of Treasury of Puerto Rico is not in our balance sheet. We just have some agencies, some of the public operations, small balances that could be -- could have that impact here.

So our focus is growing strategy. Yeah, we're focused and the core strategy being core transaction services. Yeah.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

All right. Thank you.

Aurelio Aleman -- President and Chief Executive Officer

Thank you.

Operator

Thank you, Ebrahim. There are no further questions at this time, so I'd like to turn the call back over to the presenters.

Ramon Rodriguez -- Head of Investor Relations

Thanks, everybody. We're going to be participating in -- in February most likely on the KBW conference. So any of the participants on the call that would like to see us, we're available. Thank you very much for your time.

Aurelio Aleman -- President and Chief Executive Officer

Thank you.

Orlando Berges -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 49 minutes