SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- First BanCorp. (the “Corporation” or “First BanCorp.”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported a net income of $70.7 million, or $0.39 per diluted share, for the second quarter of 2023, compared to $70.7 million, or $0.39 per diluted share, for the first quarter of 2023, and $74.7 million, or $0.38 per diluted share, for the second quarter of 2022.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We continue to focus on our strategic imperatives as we deliver another strong quarter of profitable growth for the franchise. We generated $70.7 million in net income, or $0.39 per share, which translated into a strong Return on Average Assets of 1.51% for the quarter. Our well diversified loan portfolio expanded for the sixth consecutive quarter, credit quality metrics remained stable, and our enduring expense management discipline is evidenced by an industry-low efficiency ratio of approximately 47.83%. Our organization is well positioned to continue gaining market share in the markets we serve by employing our long-standing client-centric omnichannel sales and service approach.
Loan origination activity during the quarter was positive and in-line with our expectations and forward guidance. Total loans increased by $140.4 million during the quarter driven by strong growth in commercial and consumer loans in Puerto Rico, particularly in the auto lending segment. Total core deposits, which exclude brokered and government deposits, decreased by $104.3 million or 0.8%. Deposit reductions continue to be driven by a combination of rate-sensitive customers looking for higher-yielding non-bank options and the gradual reduction of excess liquidity, particularly in our main market. In terms of the franchise, during the second quarter we expanded our small business digital lending offering to our other regional operations and relaunched our new corporate portal, www.1firstbank.com, which serves as an important tool for expanding our self-service distribution channels and enhancing the digital experience of our customers.
Despite higher rates and inflationary pressures, economic trends in our main market remain positive driven by the unprecedented inflow of federal funds that are expected to support economic activity over the next decade coupled with new investors coming into our market. Credit demand remains solid, labor market trends continue to improve, and strong consumer sentiment is evidenced by the rise in auto and retail sales. We are highly encouraged by the economic prospects in Puerto Rico and its potential for continued growth.
Finally, we resumed the previously authorized share buyback program in July 2023 and expect to complete the pending $75 million authorization during the third quarter. In addition, we completed our capital planning process during the second quarter, and we are very pleased to announce that our Board approved a new $225 million common share repurchase program that we expect to execute by the third quarter of 2024. Our ample capital position remains significantly above “well capitalized” thresholds which allows us to continue growing the franchise under any operating environment and supporting our people and the communities we serve while enhancing shareholder value."
NON-GAAP DISCLOSURES
This press release contains GAAP financial measures and non-GAAP financial measures. Non-GAAP financial measures are used when management believes that the presentation of these non-GAAP financial measures enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. The Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process. Where non-GAAP financial measures are used, the most comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the most comparable GAAP financial measure, can be found in the text or in the tables in or attached to this press release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
Certain non-GAAP financial measures, such as adjusted net income, adjusted pre-tax, pre-provision income, adjusted non-interest income, and adjusted efficiency ratio, exclude the effect of items that management believes are not reflective of core operating performance (the “Special Items”). Other non-GAAP financial measures include adjusted net interest income and margin, tangible common equity, tangible book value per common share, and certain capital ratios. These measures should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release, and the Corporation’s other financial information that is presented in accordance with GAAP.
Special Items
The financial results for the first quarter of 2023 and second quarter of 2022 did not include any significant Special Items. The financial results for the second quarter of 2023 included the following Special Items:
Quarter ended June 30, 2023
Non-GAAP Financial Measures
Adjusted Pre-Tax, Pre-Provision Income
Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes or health epidemics. Adjusted pre-tax, pre-provision income, as defined by management, represents income before income taxes adjusted to exclude the provisions for credit losses on loans, unfunded loan commitments and debt securities and any gains or losses on sales of investment securities. In addition, from time to time, earnings are also adjusted for certain items that management believes are not reflective of core operating performance regarded as Special Items.
Tangible Common Equity Ratio and Tangible Book Value per Common Share
The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other intangibles. Tangible assets are total assets less goodwill and other intangibles. Management uses and believes that many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with other more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosure of these financial measures may be useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.
Net Interest Income Excluding Valuations, and on a Tax-Equivalent Basis
Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis in order to provide to investors additional information about the Corporation’s net interest income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that management believes facilitates comparison of results to the results of peers.
NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)
Net income was $70.7 million for the second quarter of 2023, or $0.39 per diluted share, consistent with the first quarter of 2023. The following table reconciles, for the second quarter of 2023 and six-month period ended June 30, 2023, the net income to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures that exclude the significant Special Items identified above, and shows the net income and earnings per diluted share for the first quarter of 2023, the second quarter of 2022, and six-month period ended June 30, 2022.
Quarter Ended
Six Month-Period Ended
June 30, 2023
March 31, 2023
June 30, 2022
(In thousands, except per share information)
Net income, as reported (GAAP)
$
70,655
70,698
74,695
141,353
157,295
Adjustments:
Gain recognized from legal settlement
(3,600
)
-
Gain on early extinguishment of debt
(1,605
Income tax impact of adjustments
1,350
Adjusted net income attributable to common stockholders (non-GAAP)
66,800
137,498
Weighted-average diluted shares outstanding
179,277
181,236
195,366
180,253
197,441
Earnings Per Share - diluted (GAAP)
0.39
0.38
0.78
0.80
Adjusted Earnings Per Share - diluted (Non-GAAP)
0.37
0.76
INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)
Income before income taxes was $101.0 million for the second quarter of 2023, compared to $102.6 million for the first quarter of 2023. For the six-month period ended June 30, 2023, income before income taxes was $203.6 million, compared to $234.4 million for the same period in 2022. Adjusted pre-tax, pre-provision income was $118.0 million for the second quarter of 2023, compared to $118.1 million for the first quarter of 2023. For the six-month period ended June 30, 2023, adjusted pre-tax, pre-provision income was $236.1 million, compared to $230.6 million for the same period in 2022. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters and for the six-month periods ended June 30, 2023 and 2022:
Six-Month Period Ended
December 31, 2022
September 30, 2022
(Dollars in thousands)
Income before income taxes
100,939
102,633
106,530
106,631
108,798
203,572
234,423
Add/Less: Provision for credit losses expense (benefit)
22,230
15,502
15,712
15,783
10,003
37,732
(3,799
Less: Gain recognized from legal settlement
Less: Gain on early extinguishment of debt
Adjusted pre-tax, pre-provision income (1)
117,964
118,135
122,242
122,414
118,801
236,099
230,624
Change from most recent prior period (amount)
(171
(4,107
(172
3,613
6,978
5,475
47,581
Change from most recent prior period (percentage)
-0.1
%
-3.4
3.0
6.2
2.4
26.0
(1)
Non-GAAP financial measure. See Non-GAAP Disclosures above for the definition and additional information about this non-GAAP financial measure.
NET INTEREST INCOME
The following table sets forth information concerning net interest income for the last five quarters:
June 30,2023
June 30,2022
Net Interest Income
Interest income
252,204
242,396
233,452
222,683
208,625
Interest expense
52,389
41,511
27,879
14,773
12,439
Net interest income
199,815
200,885
205,573
207,910
196,186
Average Balances
Loans and leases
11,591,516
11,519,399
11,364,963
11,218,864
11,102,310
Total securities, other short-term investments and interest-bearing cash balances
7,333,989
7,232,347
7,314,293
7,938,530
8,568,022
Average interest-earning assets
18,925,505
18,751,746
18,679,256
19,157,394
19,670,332
Average interest-bearing liabilities
11,176,385
10,957,892
10,683,776
11,026,975
11,567,228
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.35%
5.24%
4.96%
4.61%
4.25%
Average rate on interest-bearing liabilities - GAAP
1.88%
1.54%
1.04%
0.53%
0.43%
Net interest spread - GAAP
3.47%
3.70%
3.92%
4.08%
3.82%
Net interest margin - GAAP
4.23%
4.34%
4.37%
4.31%
4.00%
Net interest income amounted to $199.8 million for the second quarter of 2023, a decrease of $1.1 million, compared to $200.9 million for the first quarter of 2023. The decrease in net interest income reflects the following:
Partially offset by:
Net interest margin for the second quarter of 2023 decreased to 4.23%, compared to 4.34% for the first quarter of 2023, mainly reflecting the effect of higher rates paid on deposits and an increasing migration from non-interest-bearing and other low cost deposits to higher cost time deposits that exceeded the increase in earning asset yields over the quarter.
NON-INTEREST INCOME
The following table sets forth information concerning non-interest income for the last five quarters:
(In thousands)
Service charges and fees on deposit accounts
9,287
9,541
9,174
9,820
9,466
Mortgage banking activities
2,860
2,812
2,572
3,400
4,082
Insurance commission income
2,747
4,847
2,898
2,624
2,946
Card and processing income
11,135
10,918
10,601
9,834
10,300
1,605
Other non-interest income
8,637
4,400
4,355
4,015
4,147
Non-interest income
36,271
32,518
29,600
29,693
30,941
Non-interest income amounted to $36.3 million for the second quarter of 2023, compared to $32.5 million for the first quarter of 2023. Non-interest income for the second quarter of 2023 includes the $3.6 million gain recognized from a legal settlement included as part of other non-interest income and the $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures included as part of gain on early extinguishment of debt. On a non-GAAP basis, excluding the effect of these Special Items, adjusted non-interest income decreased by $1.4 million mainly due to:
NON-INTEREST EXPENSES
The following table sets forth information concerning non-interest expenses for the last five quarters:
Employees' compensation and benefits
54,314
56,422
52,241
52,939
51,304
Occupancy and equipment
21,097
21,186
21,843
22,543
21,505
Business promotion
4,167
3,975
5,590
5,136
4,042
Professional service fees:
Collections, appraisals and other credit-related fees
1,231
848
1,483
1,261
1,075
Outsourcing technology services
7,278
8,141
7,806
7,564
7,636
Other professional fees
3,087
2,984
3,380
3,724
3,325
Taxes, other than income taxes
5,124
5,112
5,211
5,349
4,689
FDIC deposit insurance
2,143
2,133
1,544
1,466
Other insurance and supervisory fees
2,352
2,368
2,429
2,387
2,303
Net gain on OREO operations
(1,984
(1,996
(2,557
(1,064
(1,485
Credit and debit card processing expenses
6,540
5,318
6,362
6,410
5,843
Communications
1,992
2,216
2,322
2,272
1,978
Other non-interest expenses
5,576
6,561
5,277
5,202
4,645
Total non-interest expenses
112,917
115,268
112,931
115,189
108,326
Non-interest expenses amounted to $112.9 million in the second quarter of 2023, a decrease of $2.4 million from $115.3 million in the first quarter of 2023. The $2.4 million decrease reflects the following significant variances:
INCOME TAXES
The Corporation recorded an income tax expense of $30.3 million for the second quarter of 2023, compared to $31.9 million for the first quarter of 2023. The decrease was mainly related to lower pre-tax income and a lower estimated effective tax rate when compared to the previous quarter.
The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, was 30.1% for the second quarter of 2023, compared to 31.2% for the first quarter of 2023. As of June 30, 2023, the Corporation had a deferred tax asset of $153.9 million, net of a valuation allowance of $184.2 million against the deferred tax assets.
CREDIT QUALITY
Non-Performing Assets
The following table sets forth information concerning non-performing assets for the last five quarters:
Nonaccrual loans held for investment:
Residential mortgage
33,252
36,410
42,772
43,036
44,588
Commercial mortgage
21,536
21,598
22,319
23,741
24,753
Commercial and Industrial
9,194
13,404
7,830
15,715
17,079
Construction
1,677
1,794
2,208
2,237
2,375
Consumer and finance leases
16,362
15,936
14,806
12,787
10,315
Total nonaccrual loans held for investment
82,021
89,142
89,935
97,516
99,110
OREO
31,571
32,862
31,641
38,682
41,706
Other repossessed property
5,404
4,743
5,380
4,936
3,840
Other assets (1)
2,111
2,203
2,202
2,193
2,809
Total non-performing assets (2)
121,107
128,950
129,158
143,327
147,465
Past due loans 90 days and still accruing (3)
63,211
74,380
80,517
81,790
94,485
Nonaccrual loans held for investment to total loans held for investment
0.70
0.77
0.86
0.88
Nonaccrual loans to total loans
Non-performing assets to total assets
0.63
0.68
0.69
Residential pass-through MBS issued by the Puerto Rico Housing Finance Authority ("PRHFA") held as part of the available-for-sale debt securities portfolio.
(2)
Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption of current expected credit losses ("CECL") on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more amounted to $9.5 million as of June 30, 2023 (March 31, 2023 - $10.4 million; December 31, 2022 - $12.0 million; September 30, 2022 - $12.8 million; June 30, 2022 - $15.3 million).
(3)
These include rebooked loans, which were previously pooled into Government National Mortgage Association ("GNMA") securities, amounting to $6.5 million as of June 30, 2023 (March 31, 2023 - $7.1 million; December 31, 2022 - $10.3 million; September 30, 2022 - $8.0 million; June 30, 2022 - $10.8 million). Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability.
Variances in credit quality metrics:
Early Delinquency
Total loans held for investment in early delinquency (i.e., 30-89 days past due accruing loans, as defined in regulatory reporting instructions) amounted to $118.5 million as of June 30, 2023, an increase of $24.0 million, compared to $94.5 million as of March 31, 2023. The variances by major portfolio categories are as follows:
Allowance for Credit Losses
The following table summarizes the activity of the allowance for credit losses (“ACL”) for on-balance sheet and off-balance sheet exposures during the second and first quarters of 2023:
Loans and Finance Leases
Debt Securities
Residential Mortgage
Commercial and Construction
Consumer Loans and Finance
Total Loans and Finance
Unfunded Loans
Held-to
Available-
Loans
Leases
Commitments
Maturity
for-Sale
Total ACL
Allowance for credit losses, beginning balance
64,403
70,926
130,238
265,567
4,168
7,646
449
277,830
Provision for credit losses - (benefit) expense
(3,500
10,198
14,072
20,770
721
755
(16
Net charge-offs
(389
(5,879
(13,011
(19,279
Allowance for credit losses, end of period
60,514
75,245
131,299
267,058
4,889
8,401
433
280,781
Amortized cost of loans and finance leases
2,793,790
5,430,268
3,495,257
11,719,315
Allowance for credit losses on loans to amortized cost
2.17
1.39
3.76
2.28
Quarter ended March 31, 2023
-Maturity
62,760
70,278
127,426
260,464
4,273
8,286
458
273,481
Impact of adoption of ASU 2022-02 (1)
2,056
7
53
2,116
Provision for credit losses - expense (benefit)
73
456
15,727
16,256
(105
(640
(9
Net (charge-offs) recoveries
(486
185
(12,968
(13,269
2,811,528
5,359,512
3,406,945
11,577,985
2.29
1.32
3.82
Related to the adoption on January 1, 2023 of Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans.
The main variances of the total ACL by main categories are discussed below:
Allowance for Credit Losses for Loans and Finance Leases
As of June 30, 2023, the ACL for loans and finance leases was $267.1 million, an increase of $1.5 million, from $265.6 million as of March 31, 2023. The ACL for commercial and construction loans increased by $4.3 million, mainly due to a deterioration in the forecasted CRE Price Index to account for an increased uncertainty in the CRE market at a national level that could potentially impact the markets we serve coupled with the growth in the commercial and construction loan portfolios, partially offset by the aforementioned charge-off recorded during the second quarter of 2023. The ACL for consumer loans increased by $1.1 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios, partially offset by updated macroeconomic variables, such as the unemployment rate, which are now forecasted to deteriorate at a slower pace than previously expected. The ACL for residential mortgage loans decreased by $3.9 million, mainly due to a more favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the Regional Home Price Index.
Net Charge-Offs
The following table presents ratios of annualized net charge-offs (recoveries) to average loans held-in-portfolio for the last five quarters:
0.06%
0.07%
0.13%
0.11%
0.01%
-0.03%
0.00%
-0.01%
-0.22%
0.87%
0.19%
-0.07%
-0.99%
-0.17%
-1.82%
-0.09%
Consumer loans and finance leases
1.51%
1.44%
1.05%
0.91%
Total loans
0.67%
0.46%
0.31%
0.21%
The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.
Net charge-offs were $19.3 million for the second quarter of 2023, or an annualized 0.67% of average loans, compared to $13.3 million, or an annualized 0.46% of average loans, in the first quarter of 2023. The increase of $6.0 million in net charge-offs was driven by a $6.1 million increase in commercial and construction loans net charge-offs mainly related to the aforementioned $6.2 million charge-off recorded during the second quarter of 2023.
Allowance for Credit Losses for Unfunded Loan Commitments
As of June 30, 2023, the ACL for off-balance sheet credit exposures increased to $4.9 million, compared to $4.2 million as of March 31, 2023, mainly in the construction loan portfolio, due to a deterioration in the forecasted CRE Price Index.
Allowance for Credit Losses for Debt Securities
As of June 30, 2023, the ACL for debt securities was $8.8 million, of which $8.4 million is related to Puerto Rico municipal bonds classified as held-to-maturity, compared to $8.0 million and $7.6 million, respectively, as of March 31, 2023. The increase in the ACL of held-to-maturity debt securities was mostly driven by higher exposure risk associated to the rising interest rate environment.
LIQUIDITY
Cash and cash equivalents increased by $223.9 million to $1.0 billion as of June 30, 2023. When adding $2.2 billion of free high-quality liquid securities that could be liquidated or pledged within one day, total core liquidity amounted to $3.2 billion as of June 30, 2023, or 16.70% of total assets, compared to $3.2 billion, or 16.77% of total assets as of March 31, 2023. In addition, as of June 30, 2023, the Corporation had $980.9 million available for credit with the FHLB based on the value of collateral pledged with the FHLB. As such, the basic liquidity ratio (which includes cash, free high-quality liquid assets such as U.S. government and government sponsored entities’ obligations that could be liquidated or pledged within one day, and available secured lines of credit with the FHLB to total assets) was approximately 21.82% as of June 30, 2023, compared to 21.42% as of March 31, 2023.
In addition to the aforementioned available credit from the FHLB, the Corporation also maintains borrowing capacity at the FED Discount Window Program. The Corporation does not consider borrowing capacity from the FED Discount Window as a primary source of liquidity but had approximately $1.4 billion available for funding under the FED’s Borrower-In-Custody (“BIC”) Program as of June 30, 2023. Also, the Corporation has access to financing with other counterparties through repurchase agreements and is enrolled in the FED’s Bank Term Funding Program. Combined, as of June 30, 2023, the Corporation had $5.6 billion available to meet liquidity needs.
The Corporation’s total deposits, excluding brokered CDs, amounted to $16.5 billion as of June 30, 2023, compared to $15.8 billion as of March 31, 2023, including government deposits amounting to $3.4 billion and $2.7 billion, respectively, which are fully collateralized. As of June 30, 2023, $4.7 billion of these deposits are uninsured, which represent 28.79% of total deposits, compared to $4.8 billion, or 30.13% of total deposits, as of March 31, 2023. Brokered CDs amounted to $363.6 million as of June 30, 2023, compared to $252.9 million as of March 31, 2023. Refer to Table 11 for additional information about the deposits composition.
STATEMENT OF FINANCIAL CONDITION
Total assets were approximately $19.2 billion as of June 30, 2023, up $175.4 million from March 31, 2023.
The following variances within the main components of total assets are noted:
Total liabilities were approximately $17.8 billion as of June 30, 2023, an increase of $183.0 million from March 31, 2023.
The increase in total liabilities was mainly due to:
Total stockholders’ equity amounted to $1.4 billion as of June 30, 2023, a decrease of $7.6 million from March 31, 2023, mainly driven by the $54.8 million decrease in the fair value of available-for-sale debt securities due to changes in market interest rates recognized as part of accumulated other comprehensive loss and $25.3 million in common stock dividends declared in the second quarter of 2023, partially offset by earnings generated in the second quarter of 2023.
As of June 30, 2023, capital ratios exceeded the required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s estimated CET1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 16.64%, 16.64%, 19.15%, and 10.73%, respectively, as of June 30, 2023, compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.33%, 16.33%, 19.02%, and 10.57%, respectively, as of March 31, 2023.
Meanwhile, estimated CET1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank, were 16.54%, 17.34%, 18.59%, and 11.18%, respectively, as of June 30, 2023, compared to CET1 capital, tier 1 capital, total capital and leverage ratios of 16.65%, 17.45%, 18.71%, and 11.29%, respectively, as of March 31, 2023.
Tangible Common Equity (Non-GAAP)
On a non-GAAP basis, the Corporation’s tangible common equity ratio decreased to 7.03% as of June 30, 2023, compared to 7.12% as of March 31, 2023.
The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets to the most comparable GAAP items as of the indicated dates:
(In thousands, except ratios and per share information)
Tangible Equity:
Total common equity - GAAP
1,397,999
1,405,593
1,325,540
1,265,333
1,557,916
Goodwill
(38,611
Purchased credit card relationship intangible
(17
(86
(205
(376
(599
Core deposit intangible
(17,075
(18,987
(20,900
(22,818
(24,736
Insurance customer relationship intangible
(13
(51
(89
Tangible common equity - non-GAAP
1,342,296
1,347,909
1,265,811
1,203,477
1,493,881
Tangible Assets:
Total assets - GAAP
19,152,455
18,977,114
18,634,484
18,442,034
19,531,635
Tangible assets - non-GAAP
19,096,752
18,919,430
18,574,755
18,380,178
19,467,600
Common shares outstanding
179,757
179,789
182,709
186,258
191,626
Tangible common equity ratio - non-GAAP
7.03
7.12
6.81
6.55
7.67
Tangible book value per common share - non-GAAP
7.47
7.50
6.93
6.46
7.80
Exposure to Puerto Rico Government
As of June 30, 2023, the Corporation had $344.3 million of direct exposure to the Puerto Rico government, its municipalities, and public corporations, an increase of $4.3 million when compared to $340.0 million as of March 31, 2023. As of June 30, 2023, approximately $186.2 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit, and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $113.2 million consisted of loans and obligations which are supported by one or more specific sources of municipal revenues. The Corporation’s total direct exposure to the Puerto Rico government also included $9.5 million in a loan extended to an affiliate of the Puerto Rico Electric Power Authority and $32.1 million in loans to agencies of Puerto Rico public corporations. In addition, the total direct exposure included obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.3 million (fair value of $2.1 million as of June 30, 2023), included as part of the Corporation’s available-for-sale debt securities portfolio. This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages and had an unrealized loss of $1.1 million as of June 30, 2023, of which $0.3 million is due to credit deterioration.
The aforementioned exposure to municipalities in Puerto Rico included $166.1 million of financing arrangements with Puerto Rico municipalities that were issued in bond form but underwritten as loans with features that are typically found in commercial loans. These bonds are accounted for as held-to-maturity debt securities. As of June 30, 2023, the ACL for these securities was $8.4 million, compared to $7.6 million as of March 31, 2023.
As of June 30, 2023, the Corporation had $2.9 billion of public sector deposits in Puerto Rico, compared to $2.2 billion as of March 31, 2023. Approximately 21% of the public sector deposits as of June 30, 2023, were from municipalities and municipal agencies in Puerto Rico, and 79% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.
Conference Call / Webcast Information
First BanCorp.’s senior management will host an earnings conference call and live webcast on Thursday, July 27, 2023, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s web site, fbpinvestor.com, or through a dial-in telephone number at (833) 470-1428 or (404) 975-4839 for international callers. The participant access code is 640793. The Corporation recommends that listeners go to the web site at least 15 minutes prior to the call to download and install any necessary software. Following the webcast presentation, a question and answer session will be made available to research analysts and institutional investors. A replay of the webcast will be archived in the investor relations section of First BanCorp.’s website, fbpinvestor.com, until July 27, 2024. A telephone replay will be available one hour after the end of the conference call through August 26, 2023, at (866) 813-9403. The replay access code is 486480.
Safe Harbor
This press release may contain “forward-looking statements” concerning the Corporation’s future economic, operational, and financial performance. The words or phrases “expect,” “anticipate,” “intend,” “should,” “would,” “will,” “plans,” “forecast,” “believe,” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof, and advises readers that any such forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, including, but not limited to, the uncertainties more fully discussed in Part I, Item 1A, “Risk Factors” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, Part II, Item 1A, “Risk Factors” of the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, and the following, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: the impacts of rising interest rates and inflation on the Corporation, including a decrease in demand for new loan originations and refinancings, increased competition for borrowers, attrition in deposits, a reduction in the fair value of the Corporation’s debt securities portfolio, and an increase in non-interest expenses which would impact the Corporation’s earnings and may adversely impact origination volumes, liquidity, and financial performance; volatility in the financial services industry, including failures or rumored failures of other depository institutions, and actions taken by governmental agencies to stabilize the financial system, which could result in, among other things, bank deposit runoffs and liquidity constraints; the effect of continued changes in the fiscal and monetary policies and regulations of the U.S. federal government, the Puerto Rico government and other governments, including those determined by the Federal Reserve Board, the Federal Reserve Bank of New York, the Federal Deposit Insurance Corporation (“FDIC”), government-sponsored housing agencies and regulators in Puerto Rico and the U.S. and British Virgin Islands; uncertainty as to the ability of FirstBank to retain its core deposits and generate sufficient cash flow through its wholesale funding sources, such as securities sold under agreements to repurchase, FHLB advances, and brokered CDs, which in turn affects its ability to make dividend payments to the Corporation and could result in selling certain investment securities portfolio at a loss; adverse changes in general economic conditions in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, including in the interest rate environment, unemployment rates, market liquidity, housing absorption rates, real estate markets, and U.S. capital markets, which may affect funding sources, loan portfolio performance and credit quality, market prices of investment securities, and demand for the Corporation’s products and services, and which may reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; the impact of government financial assistance for hurricane recovery and other disaster relief on economic activity in Puerto Rico, and the timing and pace of disbursements of funds earmarked for disaster relief; the ability of the Corporation, FirstBank, and third-party service providers to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking,” identity theft, and state-sponsored cyberthreats, and the occurrence of and response to any incidents that occur, such as an April 2023 security incident at one of our third-party vendors, which may result in misuse or misappropriation of confidential or proprietary information, disruption, or damage to our systems or those of third-party service providers, increased costs and losses or an adverse effect to our reputation; general competitive factors and other market risks as well as the implementation of strategic growth opportunities, including risks, uncertainties, and other factors or events related to any business acquisitions or dispositions; uncertainty as to the implementation of the debt restructuring plan of Puerto Rico and the fiscal plan for Puerto Rico as certified on April 3, 2023, by the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments and tax regulations in Puerto Rico; the impact of changes in accounting standards, or assumptions in applying those standards, on forecasts of economic variables considered for the determination of the ACL; the ability of FirstBank to realize the benefits of its net deferred tax assets; environmental, social, and governance matters, including our climate-related initiatives and commitments; the impacts of natural or man-made disasters, widespread health emergencies, geopolitical conflicts (including the ongoing conflict in Ukraine), terrorist attacks, or other catastrophic external events, including impacts of such events on general economic conditions and on the Corporation’s assumptions regarding forecasts of economic variables; the effect of changes in the interest rate environment, including any adverse change in the Corporation’s ability to attract and retain clients and gain acceptance from current and prospective customers for new products and services, including those related to the offering of digital banking and financial services; the risk that additional portions of the unrealized losses in the Corporation’s debt securities portfolio are determined to be credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s available-for-sale debt securities portfolio; the impacts of applicable legislative, tax, or regulatory changes on the Corporation’s financial condition or performance; the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments, causing an additional increase in the Corporation’s non-interest expenses; any need to recognize impairments on the Corporation’s financial instruments, goodwill, and other intangible assets; the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of FirstBank and preclude the Corporation’s Board of Directors from declaring dividends; and uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels, and compliance with applicable laws, regulations and related requirements. The Corporation does not undertake, and specifically disclaims any obligation to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal securities laws.
About First BanCorp.
First BanCorp. is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the U.S., and the British Virgin Islands and Florida, and of FirstBank Insurance Agency. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp. and First Express, both small loan companies. First BanCorp.’s shares of common stock trade on the New York Stock Exchange under the symbol FBP. Additional information about First BanCorp. may be found at www.1firstbank.com.
EXHIBIT A
Table 1 – Condensed Consolidated Statements of Financial Condition
As of
(In thousands, except for share information)
ASSETS
Cash and due from banks
1,046,534
822,542
478,480
Money market investments:
Time deposits with other financial institutions
300
Other short-term investments
700
759
1,725
Total money market investments
1,000
1,059
2,025
Debt securities available for sale, at fair value (ACL of $433 as of June 30, 2023; $449 as of March 31, 2023; and $458 as of December 31, 2022)
5,433,369
5,589,256
5,599,520
Debt securities held to maturity, at amortized cost, net of ACL of $8,401 as of June 30, 2023; $7,646 as of March 31, 2023; and $8,286 as of December 31, 2022 (fair value of $410,181 as of June 30, 2023; $419,752 as of March 31, 2023; and $427,115 as of December 31, 2022)
416,325
423,749
429,251
Total debt securities
5,849,694
6,013,005
6,028,771
Equity securities
48,101
66,714
55,289
Total investment securities
5,897,795
6,079,719
6,084,060
Loans, net of ACL of $267,058 as of June 30, 2023; $265,567 as of March 31, 2023; and $260,464 as of December 31, 2022
11,452,257
11,312,418
11,292,361
Loans held for sale, at lower of cost or market
14,295
15,183
12,306
Total loans, net
11,466,552
11,327,601
11,304,667
Accrued interest receivable on loans and investments
70,368
63,841
69,730
Premises and equipment, net
146,640
137,580
142,935
Deferred tax asset, net
153,925
154,780
155,584
38,611
Other intangible assets
17,092
19,073
21,118
Other assets
282,367
299,446
305,633
Total assets
LIABILITIES
Deposits:
Non-interest-bearing deposits
5,874,261
6,024,304
6,112,884
Interest-bearing deposits
10,945,431
10,027,661
10,030,583
Total deposits
16,819,692
16,051,965
16,143,467
Securities sold under agreements to repurchase
73,934
172,982
75,133
Advances from the FHLB
500,000
925,000
675,000
Other borrowings
161,700
183,762
Accounts payable and other liabilities
199,130
237,812
231,582
Total liabilities
17,754,456
17,571,521
17,308,944
STOCKHOLDERSʼ EQUITY
Common stock, $0.10 par value, 223,663,116 shares issued (June 30, 2023 - 179,756,622 shares outstanding; March 31, 2023 - 179,788,698 shares outstanding; and December 31, 2022 - 182,709,059 shares outstanding)
22,366
Additional paid-in capital
962,229
959,912
970,722
Retained earnings
1,733,497
1,688,176
1,644,209
Treasury stock, at cost (June 30, 2023 - 43,906,494 shares; March 31, 2023 - 43,874,418 shares; December 31, 2022 - 40,954,057 shares)
(547,706
(547,311
(506,979
Accumulated other comprehensive loss
(772,387
(717,550
(804,778
Total stockholdersʼ equity
Total liabilities and stockholdersʼ equity
Table 2 – Condensed Consolidated Statements of Income
Net interest income:
494,600
406,479
93,900
24,669
400,700
381,810
Provision for credit losses - expense (benefit):
12,665
37,026
(4,324
Unfunded loan commitments
812
616
634
Debt securities
739
(649
(3,474
90
(109
Net interest income after provision for credit losses
177,585
185,383
186,183
362,968
385,609
Non-interest income:
18,828
18,829
5,672
9,288
22,053
19,981
11,384
9,247
7,093
20,631
15,701
Total non-interest income
68,789
63,799
Non-interest expenses:
Employees’ compensation and benefits
110,736
100,858
42,283
43,891
8,142
7,505
Professional service fees
11,596
11,973
12,036
23,569
22,630
10,236
9,707
Insurance and supervisory fees
4,495
4,501
3,769
8,996
7,677
(3,980
(2,205
11,858
9,964
7,568
8,777
6,623
16,345
14,958
228,185
214,985
Income tax expense
30,284
31,935
34,103
62,219
77,128
Net income
Net income attributable to common stockholders
Earnings per common share:
Basic
0.79
Diluted
Table 3 – Selected Financial Data
(Shares in thousands)
Per Common Share Results:
Net earnings per share - basic
Net earnings per share - diluted
Cash dividends declared
0.14
0.12
0.28
0.22
Average shares outstanding
178,926
180,215
194,405
179,567
196,257
Average shares outstanding diluted
Book value per common share
7.78
7.82
8.13
Tangible book value per common share (1)
Common Stock Price: End of period
12.22
11.42
12.91
Selected Financial Ratios (In Percent):
Profitability:
Return on Average Assets
1.51
1.55
1.52
1.53
1.59
Return on Average Common Equity
19.66
21.00
17.82
20.31
17.18
Interest Rate Spread (2)
3.58
3.84
4.01
3.71
3.89
Net Interest Margin (2)
4.35
4.48
4.19
4.42
4.08
Efficiency ratio (3)
47.83
49.39
47.69
48.60
48.25
Capital and Other:
Average Total Equity to Average Total Assets
7.36
8.52
7.52
9.24
Total capital
19.15
19.02
19.98
Common equity Tier 1 capital
16.64
16.33
17.23
Tier 1 capital
Leverage
10.73
10.57
10.18
Tangible common equity ratio (1)
Dividend payout ratio
35.45
35.69
31.23
35.57
27.45
Basic liquidity ratio (4)
21.82
21.42
28.84
Core liquidity ratio (5)
16.70
16.77
23.11
Loan to deposit ratio
69.76
72.22
65.52
Uninsured deposits, excluding fully collateralized deposits, to total deposits
28.79
30.13
31.89
Asset Quality:
Allowance for credit losses for loans and finance leases to total loans held for investment
2.25
Net charge-offs (annualized) to average loans outstanding
0.67
0.46
0.21
0.56
0.23
Provision for credit losses for loans and finance leases - expense (benefit) to net charge-offs
107.73
122.51
212.50
113.76
(34.44
Allowance for credit losses for loans and finance leases to total nonaccrual loans held for investment
325.60
297.91
254.42
Allowance for credit losses for loans and finance leases to total nonaccrual loans held for investment, excluding residential estate loans
547.60
503.62
462.48
Non-GAAP financial measures (as defined above). Refer to Statement of Financial Condition above and Table 4 below for additional information about the components and a reconciliation of these measures.
On a tax-equivalent basis and excluding changes in the fair value of derivative instruments (non-GAAP financial measure). Refer to Non-GAAP Disclosures above for additional information and a reconciliation of these measures.
Non-interest expenses to the sum of net interest income and non-interest income.
(4)
Defined as the sum of cash and cash equivalents, free high quality liquid assets that could be liquidated within one day, and available secured lines of credit with the FHLB to total assets.
(5)
Defined as the sum of cash and cash equivalents and free high quality liquid assets that could be liquidated within one day to total assets.
Table 4 – Reconciliation of Net Interest Income to Net Interest Income Excluding Valuations and on a Tax-Equivalent Basis
The following table reconciles net interest income in accordance with GAAP to net interest income excluding valuations, and net interest income on a tax-equivalent basis for the second and first quarters of 2023, the second quarter of 2022 and the six-month periods ended June 30, 2023 and 2022, respectively. The table also reconciles netinterest spread and net interest margin to these items excluding valuations, and on a tax-equivalent basis.
Interest income - GAAP
Unrealized (gain) loss on derivative instruments
(3
6
3
(24
Interest income excluding valuations non-GAAP
252,201
242,402
208,616
494,603
406,455
Tax-equivalent adjustment
5,540
6,347
9,389
11,887
16,608
Interest income on a tax-equivalent basis and excluding valuations non-GAAP
257,741
248,749
218,005
506,490
423,063
Interest expense - GAAP
Net interest income - GAAP
Net interest income excluding valuations - non-GAAP
199,812
200,891
196,177
400,703
381,786
Net interest income on a tax-equivalent basis and excluding valuations - non-GAAP
205,352
207,238
205,566
412,590
398,394
11,555,659
11,104,571
7,283,450
8,607,337
Average Interest-Earning Assets
18,839,109
19,711,908
Average Interest-Bearing Liabilities
11,067,741
11,390,486
5.35
5.24
4.25
5.29
4.16
1.88
1.54
0.43
1.71
0.44
3.47
3.70
3.72
4.23
4.34
4.00
4.29
3.91
Average yield on interest-earning assets excluding valuations - non-GAAP
Average rate on interest-bearing liabilities excluding valuations - non-GAAP
Net interest spread excluding valuations - non-GAAP
Net interest margin excluding valuations - non-GAAP
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations - non-GAAP
5.46
5.38
4.45
5.42
4.33
Average rate on interest-bearing liabilities
Net interest spread on a tax-equivalent basis and excluding valuations - non-GAAP
Net interest margin on a tax-equivalent basis and excluding valuations - non-GAAP
Table 5 – Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis)
Average Volume
Interest income (1) / expense
Average Rate (1)
June 30,
March 31,
2023
2022
Interest-earning assets:
Money market and other short-term investments
617,356
404,249
1,530,353
7,880
4,650
2,873
5.12
4.67
0.75
Government obligations (2)
2,909,204
2,909,976
2,922,226
10,973
10,765
10,090
1.50
1.38
Mortgage-backed securities
3,757,425
3,864,145
4,081,573
17,087
19,396
22,804
1.82
2.04
2.24
FHLB stock
36,265
40,838
21,275
780
421
251
8.63
4.18
4.73
Other investments
13,739
13,139
12,595
58
139
12
1.69
Total investments (3)
36,778
35,371
36,030
2.01
1.98
Residential mortgage loans
2,808,465
2,835,240
2,891,403
39,864
39,794
40,573
5.69
5.63
C&I and commercial mortgage loans
5,191,040
5,167,727
5,054,223
89,290
85,885
64,500
6.90
6.74
Construction loans
149,783
146,041
124,070
2,903
2,676
1,768
7.77
7.43
5.72
Finance leases
769,316
735,500
617,399
14,714
13,809
11,410
7.61
7.41
Consumer loans
2,672,912
2,634,891
2,415,215
74,192
71,214
63,724
11.13
10.96
10.58
Total loans (4) (5)
220,963
213,378
181,975
7.65
7.51
6.57
Total interest-earning assets
Interest-bearing liabilities:
Time deposits
2,511,504
2,342,360
2,202,228
15,667
10,782
3,838
2.50
1.87
Brokered CDs
333,557
166,698
76,790
3,761
1,587
404
4.52
3.86
2.11
Other interest-bearing deposits
7,517,995
7,544,901
8,704,448
22,176
17,516
3,452
1.18
0.94
0.16
101,397
91,004
200,000
1,328
1,069
1,972
5.25
4.76
3.95
534,231
629,167
6,048
7,176
4.54
4.63
2.16
177,701
3,409
3,381
1,698
7.69
7.46
Total interest-bearing liabilities
Interest rate spread
Net interest margin
On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of 37.5% and adding to it the cost of interest-bearing liabilities. When adjusted to a tax-equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments are excluded from interest income because the changes in valuation do not affect interest paid or received. Refer to Non-GAAP Disclosures and Table 4 above for additional information and a reconciliation of these measures.
Government obligations include debt issued by government-sponsored agencies.
Unrealized gains and losses on available-for-sale debt securities are excluded from the average volumes.
Average loan balances include the average of non-performing loans.
Interest income on loans includes $2.9 million, $3.1 million, and $3.0 million for the quarters ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio.
Table 6 – Year-to-Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis)
511,392
1,682,216
12,530
3,693
4.94
2,909,587
2,829,675
21,738
18,322
1.31
3,810,491
4,061,883
36,483
42,224
1.93
2.10
38,539
21,370
1,201
538
6.28
5.08
13,441
12,193
197
33
2.96
0.55
72,149
64,810
2.00
2,821,779
2,926,236
79,658
81,260
5.60
5,179,448
5,078,910
175,175
126,504
6.82
5.02
147,923
119,427
5,579
3,292
5.56
752,501
602,880
28,523
22,322
7.64
2,654,008
2,377,118
145,406
124,875
11.05
10.59
434,341
358,253
7.58
6.51
2,427,399
2,282,192
26,449
8,259
2.20
0.73
250,588
84,210
5,348
881
4.30
7,531,374
8,419,880
39,692
6,206
1.06
0.15
96,229
220,442
2,397
4,154
3.80
581,436
13,224
2,138
4.59
180,715
6,790
3,031
3.33
Interest income on loans includes $6.0 million and $5.6 million for the six-month periods ended June 30, 2023 and 2022, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
Table 7 – Loan Portfolio by Geography
As of June 30,2023
Puerto Rico
Virgin Islands
United States
Consolidated
2,179,539
172,771
441,480
Commercial loans:
Commercial mortgage loans
1,734,514
65,775
519,780
2,320,069
Commercial and Industrial loans
1,902,803
108,971
934,427
2,946,201
65,427
3,792
94,779
163,998
Commercial loans
3,702,744
178,538
1,548,986
790,711
2,630,665
66,078
7,803
2,704,546
Loans held for investment
9,303,659
417,387
1,998,269
Loans held for sale
14,094
201
9,317,753
417,588
11,733,610