Thank you. Ramón Rodríguez, Head of Investor Relations, you may begin the conference.
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 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 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 Alemán.
Thanks, Ramón. Good morning to everyone, and thanks for joining our earnings call today. Let's start by moving to slide four. 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. 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 are reaching a decade low of 0.76% of total assets, driven by, you know, repayment of several nonaccrual loans, OREO sales, and obviously, you know, less migration.
The ratio of the ACL for loans and finance leases to total loans decreased to 2.43% during the quarter, driven by, you know, combined factors such 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 continue 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. 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, you know, capital position, 17.8% common equity tier one, leaving ample room for further capital deployment initiatives during 2022. Let's move to slide five to provide some detail on the deposit and loan performance. The loan portfolio slightly decreased in the quarter by $75 million, you know, mostly driven by $73 million reduction in SBA PPP loans. Also, we experienced four large commercial repayments of relationships from Florida and Virgin Islands, which amounted to $125 million. 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 originations, commercial origination, both in Puerto Rico and Florida. Despite this large repayment, the commercial portfolio grew by $59 million, turning a corner, hopefully, as we continue to move on into 2022. Loan origination 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. I have 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, you know, remain impacted by excess liquidity, you know, and these pay downs.
You know, I think with rate markets moving up that this should diminish. On the other hand, loan originations continue to be strong. You know, we're very focused on our strategy for growing the portfolios centered around increasing consumer and commercial books, while, you know, continue to focus in the conforming residential mortgages that as we have done over the past year. In terms of deposit, core deposits continue 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 broker 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 call to Orlando to provide a summary of the year. Let's move to slide six. You know, definitely the core results for the company reflect, you know, the transformational progress that we had in multiple fronts in 2021. We generated $281 million of net income or $1.31 per diluted share compared to $1.023 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 loan originations, including, you know, 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 originated in 2021 are expected to partially fund in 2022, so they did not fund it in 2021. Importantly, during the year, we returned capital equivalent to 112% of earnings, again, in the form of repurchase of common, redemption of preferreds, and dividends. A 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, you know, we have invested significantly in our digital, you know, 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, you know, digital experience. I have to say that, you know, additional investments in technology and digital offerings are planned for 2022 in order to continue improving our competitive position in an increasingly digital environment, which, you know, we have great, you know, great progress during 2021. On the macro front, we are in these 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 towards supporting economic growth initiatives and capitalizing on the large amount of obligated disaster relief funds pending to be deployed. Like other jurisdictions, COVID cases, you know, increased recently, driven by the Omicron variant. However, our quite high vaccination rate provide 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 three operating divisions should result in increased loan demand in 2022. With that summary, I'd like to turn the call over to Orlando Berges for more details in the financial results. Thanks.
Good morning, everyone. Aurelio Alemán mentioned we had very strong 2021 results. Net income was $281 million, $1.31 a share. That if you look at results including 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 1st, 2020, so we had four months of Santander versus this year we had the full year. As he also mentioned, it reflected on pre-tax pre-provision improvements, 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.
He also made reference to $73.6 million in net income, 35¢ a share. The provision for the quarter was in fact a net benefit. We had a $12.2 billion benefit, very similar to the $12.1 we had in the third quarter. 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 on income tax expense, with the higher level of income resulted in a change in or an increase in the mix of taxable to exempt income.
Effective tax rates went up by 7 basis points for the full year, resulting in an increase in taxes of $12 million 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 661. The yield on the portfolios, the gap yield on the portfolio was 634 for the quarter, very similar to the 633 we had last quarter. Loans, if we look at the mix of earning assets, loans continue to represent approximately 55% of average interest earning assets.
The overall 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. This recent increase in market rates will provide us an increase in yields for variable rate loans. Approximately 40% of our commercial portfolio, it's 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 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 what will help in getting that overall yield of the portfolio up. If we assume the mix of interest-earning assets remaining at these levels and the expected trend on interest rates, we do foresee some increases in margin in the next few quarters. However, you know, as Aurelio mentioned, we had the reductions in the mortgage portfolio as we continue to originate a 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 compared to the third quarter. We had increases in fee income and service charges on deposits, which was offset by some decreases in the revenue of mortgage banking activities. We ended up selling less of the conforming portfolio based on their 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 year-end restructuring cost 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. 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. 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. You know, two main factors.
One of them, a 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 the 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. We expect that this increase in minimum salary, combined with some of the other ongoing recruiting efforts, should help bring back some normality 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 an additional $1.6 million net gain this quarter. Traditionally, this is not what happens.
There is always an operating cost of handling and disposing repossessed properties, but the market has provided some opportunity. 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. It's gonna take a few months before it's completed. 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-$119 range. 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 of so Aurelio made reference, was 52%, which is lower than anticipated. However, even normalized expense levels will take us to our target ratio of 55%. 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 ratios.
On asset quality, just to touch upon, Aurelio made reference to, but non-performing assets decreased by $14 million, as you saw, continue the trends. On NPA, the nonperforming assets in total stand at 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 continue 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 $280 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 that continue to be projected on macroeconomic variables that on all the variables that are used to calculate the ACL. However, we are monitoring closely the impact of the Omicron variant. Number of cases have increased significantly, especially the impact on customers in the hotel, transportation and entertainment industry. We are considering those as part of the qualitative assessments 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 $250 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 ratios significantly above 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 repurchases to 17.8 at the end of the year. Tier 1 capital just decreased two basis points from 18% to 17.8%. We continue to have ample space for capital action, as Aurelio mentioned before. With that, I would like to open the call for questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your keypad. Okay. We do have our first question, and our first question comes from Ebrahim Poonawala from Bank of America.
Good morning, Ebrahim.
Ebrahim, please go ahead.
Yeah. I guess, Orlando, just wanted to first start with expenses. There should be a $1.4 million increase in 1Q from the minimum salary and wage increases. Then you talked about getting to a 117-119 range by the back half of 2022. Is that correct?
Yes. If you take the numbers of the 111 this quarter, which it was really about 110 when you take out one.
Right.
19.5 when you take out the restructuring costs.
Right.
You can hear me?
Yeah, I can hear you.
Okay. We're saying about $1.4 million, it's definitely already there. There is gonna be a little bit of increase that normally happens on the first quarter related to all the payroll-related expenses. I mean, the payroll tax-related expenses, since you know, all the counters are reset starting the year on limits. Then, clearly, we don't. That $1.6, that $1.9 million benefit we had on occupancy, I mean, on OREO expenses, that should add back because we don't foresee that's gonna 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.
That's why, you know, clearly that is the message. It's gonna be building up a bit. Then 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 quarters.
Got it. I guess that's clear. What I'm trying to reconcile is you mentioned you think efficiency ratio can get to 55%. From what is about 52%, I think, reported for the fourth quarter of 2021. Is the 55% just a target, but you're gonna operate much lower? I'm trying to reconcile. Maybe give us a little perspective on the NII. Do you see the NII growing from here? How much 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. Give us a sense of where the NII is headed and how we should think about that 55% efficiency ratio.
Yeah, I just wanna comment. This is Aurelio, Ibrahim. I think the 55% obviously, you know, it's a performance target that we always, you know, work towards doing better than that, which has been the case for the last couple of quarters. Obviously, we don't wanna mislead that, you know, there's still expenses coming into the line. Some of them are also related to new business volume. Yes, you know, revenues should move in parallel. Obviously not at the same, you know, proportion. You know, we model the business, we model the pricing to ensure that, you know, we meet, you know, targets that are, you know, competitive and also, you know, that relates to how much we invest.
Obviously, you know, again, the performance metric of 55% is a you know a high level one, but we always, you know, work towards trying to do better than that which you know, again, it's been the case. I think what Orlando provided, you know, detail on what are the variances that are showing this, you know, fairly lower number. As you know, as we mentioned before, you know, we don't want to under-invest in the franchise and the growth opportunities.
Right.
This is a balancing act. Hopefully, you know, at the end of the day, you know, we will work to you know, stay better than the 55. You know, obviously the business is modeled, you know, considering that that's its target. Yeah.
Yeah. On your.
Just.
The 55, again, it's you take that guidance of 117 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 gonna take a little bit of time. Obviously, reinvestment pick-ups that we'll get are gonna help, but we still have much larger portfolio than what we invest every quarter. There are some normal repayments on higher yielding investments we had from the past.
Obviously, the repricing of the commercial portfolio, we'll start to see with the SOFR or LIBOR going up, both of them as we migrate to SOFR, which is the main variable we're gonna be using. How much is the pick-up in margin? I'm a little bit hesitant to give you now. I feel comfortable it's gonna go up. We need to see how that shifts on some of the mortgage components and the speed of the reinvestment.
Understood. 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?
Trying to remember the number, Ebrahim. I don't have it off 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 off the top of my head because it's.
That's.
It's mixed up a bit sometimes with the repayments. I'll get that information and make sure everyone gets it.
That's fine. 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?
You know, our timeline, it's similar to last year. You know, we should announce, you know, our capital actions, you know, sometime, you know, during April when we report next time, as we did last year. It's in progress. Obviously, you saw what happened over the last 12 months. We basically completed the plan, the $300 million, and we basically are at the same place where we started. I think it's logical to assume that, you know, going further, you know, our goal, you know, is to, you know, sustain, you know, what we recently accomplished during 2021. You know, I cannot give you an answer. It's gonna be bigger or better yet.
You know, we have to wait until April that we announce and we conclude on the process. Yeah. Remember, we also are looking to achieve balance sheet growth during 2022.
Noted. I'll take it. Thanks for taking my questions.
Yeah.
Aurelio.
Thank you, Ibrahim. The next question comes from Timur Braziler from Wells Fargo. Timur, please go ahead. Oh, we seem to have lost Timur, so we'll go on to our next question, who comes from Alex Twerdahl at Piper Sandler. Twerdahl, please go ahead.
Thanks. Good morning.
Morning, Alex.
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 were originated in 2021 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.
Yeah, I did say construction loans. Okay. 75% of construction loans. You know, we did about $200 million in 2021 of new construction loans. You know, we expect that most of it be funded by the end of 2022.
Okay. Have you started some of the projects we've talked about in the past, the projects related to the Community Development Block Grant, like the IPG and the R3 and the LIHTC. Have any of those I know you've been working with some potential customers on, you know, taking advantage of some of those programs. Has any of that started to be dispersed 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.
Yeah. Some of those programs, you know, some of them are being, you know, approved by credit already. You know, we passed the filter and the credit evaluation and, you know, obviously they're in the stages of beginning to close. I think it's gonna be through the year, very difficult to say if, you know, second quarter, third quarter, fourth quarter. We should start to see that this year, some of that this year.
Okay. We all look forward to seeing some of those loans come online. A couple more questions from me. Just when I look at fee income, it looks like the service charge fee kind of popped up. Is that due to seasonality or is that a more sustainable level?
That is not so much seasonality. The one on the deposit accounts you mean, or you mean the other ones? Because on.
Yeah.
The credit card fee kind of income, there is a little bit of seasonality because obviously you have increased purchases in the last quarter. On the deposit accounts, that's more of an ongoing kind of a thing. It's the level of normalization in the operation, the type of transactions, and so we're seeing that, also combined with the increase in deposit accounts. That's more of a normalized kind of fee generation.
Okay. Just back to expenses. You know, you're running a sort of double the level of vacancies, and I know that you don't want to under-invest in the franchise, but you've obviously been doing pretty well with even an elevated level of vacancy. Do all those positions have to be filled? I mean, maybe you can run, you know, with just a kind of a more lean workforce.
Well, you know, it's part of our day-to-day job, you know, to you know, try to be as efficient as possible. Believe me, there is a lot of discipline behind, you know, how we go about, you know, the hiring and you know, and the quantitative and qualitative factors behind it. Definitely, you know, we always look for opportunities and, you know, some of it could be linked to volumes, and it's variable if volume comes or not. It's a whole, you know, sort of decisions behind it. You know, the way we design it to achieve goals, if you know, those will be needed, a portion of those.
Keep in mind that we have the challenge of the Omicron variant and, you know, we lose people out for a few days every so often now, and that affects the service. We need to keep that. We wanna make sure that service is not affected.
Got it. Then just, you know, also on expenses, and I know that you're kind of expecting that normalized run rate towards 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 quarters?
Yeah. There are two fronts there. Number one would be on the facility side. We've completed some projects that are gonna be done probably at the end of this month, beginning of February. There is a little bit there. There is a second chunk that is gonna be completed on the second half. So full effect on facilities is probably gonna be seen on the second half of the year. When I mean it's gonna be completed on the second quarter, I meant to say, but some of these full implications would happen on 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.
They will start happening sometime 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, probably the fourth quarter or end of third quarter. That's why the normalized component, I believe the first couple of quarters would be lower than that guidance. Then we'll start getting to our guidance by the end of the year.
Okay. 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?
I'm trying to remember the numbers, Alex. Remember what's happening with refis is that a lot of loans are qualifying for you know, FHA funding kind of programs now with the levels. I can't recall off the top of my head. I need to get for you that also. What's the normal repayment on the existing portfolio so that I can give you better indication on that.
Okay. Thanks for taking my questions.
Thank you, Alex.
Thank you, Alex. Our next question comes from Timur Braziler from Wells Fargo. Timur, please go ahead.
Hi, good morning. Sorry about the technical difficulties earlier.
No problem. How are you?
Good. Thank you. Maybe just circling back to the last question, more broadly on the resi runoff. Kinda when does that subside? Are we getting pretty close in the cycle now where we're gonna start reaching an inflection point in that portfolio will at least go from being a headwind to overall loan growth?
Let me take that. Obviously there is many factors in the movement of the portfolio overall. In the resi, definitely, you know, higher. If you look at rates, you know, what happened in the last 30 days, you know, definitely there's a shifting of. It's gonna be a shifting of the reduction in refi. At some point in time, we were, you know, like a 55% refi, you know, 45% new money. That will definitely shift down on the refi side, and it's driven by the rates. It depends on the speed. You know, there's significant movement happened in the last, you know, since the late December to January.
We should start seeing that in the origination side, you know, this quarter I expect, and we can provide, you know, more detail next quarter. You know, and then you have, there's an element that, you know, on the other hand, in levels of conforming, the levels of mortgages in terms of dollar amount, maximum dollar amount of mortgage also, which adjusted up. You know, some of the mortgages that were non-conforming could become conforming now by that, by safe factor. It's a combination of factors that could take that. Obviously, you know, I think we have record levels, you know, prepayments on the mortgage portfolio because of the rates. That should not be present in 2022. Same thing happened in the commercial book.
You know, when you look at the originations of the quarter or the year, they were, you know, truly quite strong. The challenge was the commercial book receives, you know, significant prepayments, which again, we also expect those to reduce going forward. Then you take the consumer sector, auto continues very strong. When you look at credit card activity, it was actually very strong on the year in terms of origination activity, but also we have very high prepayments of those balances. I think in the overall, what we, you know, we are working towards growing our loan portfolio this year. We feel fairly confident that that will happen. You know, obviously because of the different initiatives, pipeline, and actions that we're taking in the business side.
Obviously, last year, we will also spend a lot of time in integration activities, management focus. Management focus now is really growth. 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, you know, a lot more confidence this year for achieving loan growth.
Okay. No, that's great color. Thank you for that. Maybe switching gears, looking at the allowance ratio and putting that kind of into context with the expectation for, or 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?
Okay. The challenge is the Omicron, to be honest, that in terms of we do have qualitative components on our reserves. If Omicron, the expectation is that that we have in the market, it's that Omicron would be a temporary impact, assuming no other variants show up. That would help keep or get the trends on improvement back. That's the case. We will see some reductions in reserve needs on existing portfolios, on 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. Clearly we still feel that we would have provisioning levels that are lower than what would be a normal trend in a year in 2022. Not over the year, we don't expect to see the level of releases that we had this year.
Okay. 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?
You know, it's something that we are constantly, you know, with the eyes open. It's been a lot of that over the last years, as you see in the chart. Obviously the investor interest continues to be positive in the island. Valuations are reflected in the valuations. Again, we always have the policy that we trade at the right price in general. If you know, there's not a lot more to dispose, to be honest. It will continue to be, you know, individually as, you know, prices come in and out on things that are, you know, in the for-sale category.
Great. Thank you for the questions.
Thank you, Timur. Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. We now have a follow-up question from Ebrahim Poonawala from Bank of America. Ebrahim, please go ahead.
Thanks. Hey, just one quick follow-up. Aurelio, you mentioned $150 million runoff coming out of the restructuring that you expect sometime 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?
No. That regarding the, you know, related to the bankruptcy, that's it. That's what we have. You know, we don't have, you know, the famous treasury account is not in our balance sheet. From the Puerto Rico Department of Treasury is not in our balance sheet. We just have some agencies, some of the public corporations, you know, small balances that could have that impact. Yeah. So our focus in the government strategy.
That's all I had.
Yeah, our focus in the government strategy is being, you know, core transaction services. Yeah.
All right. Thank you.
Thank you.
Thank you, Ebrahim. There are no further questions at this time, so I'd like to turn the call back over to the presenters.
Thanks, everybody. We're gonna be participating, now in February, most likely on the KBW conference. Any of the participants in the call that would like to see us, we're available. Thank you very much for your time.
Thank you.
Thank you.
Thank you. This concludes today's First BanCorp fourth quarter 2021 results conference call. You may now disconnect your lines.