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 first quarter of 2023, compared to $73.2 million, or $0.40 per diluted share, for the fourth quarter of 2022, and $82.6 million, or $0.41 per diluted share, for the first quarter of 2022.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We begin 2023 with very encouraging financial results for the franchise which once again prove the resiliency of our business model amidst changing market conditions. We delivered a strong Return on Average Assets of 1.55%, further strengthened our liquidity position, and registered our fifth consecutive quarter of loan growth. We generated $70.7 million in net income and achieved a pre-tax pre-provision income of $118.1 million, up 6% when compared to the first quarter of 2022 and slightly down when compared to the previous quarter.
We registered healthy loan originations driven by steady consumer and commercial credit demand, particularly in Puerto Rico where commercial and consumer loans grew by $92.3 million and $78.9 million, respectively, during the quarter. Our credit metrics continued to improve with early delinquency indicators decreasing across most portfolios and non-performing assets registering a decrease to 0.68% of total assets. Core deposits, which exclude brokered and government deposits, decreased by $142.7 million during the quarter reflecting reductions of $139.4 million in Florida and $14.6 million in the Virgin Islands, partially offset by an increase of $11.3 million registered in Puerto Rico. Over two thirds of the deposit reduction took place in the first two months of the quarter and was primarily driven by Florida customers looking for higher yielding deposit alternatives outside the traditional banking sector. Our deposit base remained very stable following the March industry events as we opened more new deposit accounts during March than any of the prior twelve months. Our diversified deposit franchise is strategically distributed between retail and commercial customers, with low average balances per deposit account, and with over 70% of deposits insured or fully collateralized.
Finally, we continued to execute our capital deployment strategy by repurchasing approximately $50.0 million in shares of common stock and raising the common stock dividend by 17% to $0.14 per share during the quarter. Considering the industry-wide uncertain environment, we opted to pause share buybacks during the second quarter and we expect to resume share repurchases during the second half of the year. We believe that our robust capital and liquidity position coupled with our unwavering commitment to meet the banking needs of our customers will enable us to continue delivering shareholder value for the foreseeable future. We operate a well-diversified organization that serves as a vital source of credit to small businesses and consumers across multiple industries and are very fortunate to have their support and that of the communities we serve.”
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.
Non-GAAP financial measures include adjusted pre-tax, pre-provision income, 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 fourth and first quarters of 2022 did not include any significant Special Items.
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.
INCOME BEFORE INCOME TAXES AND RECONCILIATION TO PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)
Income before income taxes was $102.6 million for the first quarter of 2023, compared to $106.5 million for the fourth quarter of 2022. Pre-tax, pre-provision income was $118.1 million for the first quarter of 2023, compared to $122.2 million for the fourth quarter of 2022. Compared to the first quarter of 2022, pre-tax, pre-provision income increased 5.7%. The following table reconciles income before income taxes to pre-tax, pre-provision income for the last five quarters:
Quarter Ended
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
(Dollars in thousands)
Income before income taxes
$
102,633
106,530
106,631
108,798
125,625
Add/Less: Provision for credit losses expense (benefit)
15,502
15,712
15,783
10,003
(13,802
)
Pre-tax, pre-provision income (1)
118,135
122,242
122,414
118,801
111,823
Change from most recent prior quarter (amount)
(4,107
(172
3,613
6,978
6,915
Change from most recent prior quarter (percentage)
-3.4
%
-0.1
3.0
6.2
6.6
(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:
Net Interest Income
Interest income
242,396
233,452
222,683
208,625
197,854
Interest expense
41,511
27,879
14,773
12,439
12,230
Net interest income
200,885
205,573
207,910
196,186
185,624
Average Balances
Loans and leases
11,519,399
11,364,963
11,218,864
11,102,310
11,106,855
Total securities, other short-term investments and interest-bearing cash balances
7,232,347
7,314,293
7,938,530
8,568,022
8,647,087
Average interest-earning assets
18,751,746
18,679,256
19,157,394
19,670,332
19,753,942
Average interest-bearing liabilities
10,957,892
10,683,776
11,026,975
11,567,228
11,211,780
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.24
4.96
4.61
4.25
4.06
Average rate on interest-bearing liabilities - GAAP
1.54
1.04
0.53
0.43
0.44
Net interest spread - GAAP
3.70
3.92
4.08
3.82
3.62
Net interest margin - GAAP
4.34
4.37
4.31
4.00
3.81
Net interest income amounted to $200.9 million for the first quarter of 2023, a decrease of $4.7 million, compared to $205.6 million for the fourth quarter of 2022, which includes a net reduction of approximately $2.5 million associated to the effect of two fewer days. The decrease in net interest income reflects the following:
Net interest margin for the first quarter of 2023 decreased to 4.34%, compared to 4.37% for the fourth quarter of 2022, reflecting, among other things, the effect of the increase in borrowings in the first quarter of 2023 and a 38 basis points increase in the average cost of interest-bearing deposits. These factors were partially offset by the upward repricing of variable-rate commercial loans and the growth in higher yielding loans, primarily consumer loans. In addition, the mix of average non-interest bearing deposits to average total funding sources decreased from 37% in the fourth quarter of 2022 to 35% in the first quarter of 2023, while the ratio of average borrowings to average total funding sources increased from 3% in the fourth quarter of 2022 to 5% in the first quarter of 2023.
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
9,541
9,174
9,820
9,466
9,363
Mortgage banking activities
2,812
2,572
3,400
4,082
5,206
Insurance commission income
4,847
2,898
2,624
2,946
5,275
Card and processing income
10,918
10,601
9,834
10,300
9,681
Other operating income
4,400
4,355
4,015
4,147
3,333
Non-interest income
32,518
29,600
29,693
30,941
32,858
Non-interest income amounted to $32.5 million for the first quarter of 2023, compared to $29.6 million for the fourth quarter of 2022. The $2.9 million increase in non-interest income was 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
56,422
52,241
52,939
51,304
49,554
Occupancy and equipment
21,186
21,843
22,543
21,505
22,386
Business promotion
3,975
5,590
5,136
4,042
3,463
Professional service fees:
Collections, appraisals and other credit-related fees
848
1,483
1,261
1,075
909
Outsourcing technology services
8,141
7,806
7,564
7,636
6,905
Other professional fees
2,984
3,380
3,724
3,325
2,780
Taxes, other than income taxes
5,112
5,211
5,349
4,689
5,018
FDIC deposit insurance
2,133
1,544
1,466
1,673
Other insurance and supervisory fees
2,368
2,429
2,387
2,303
2,235
Net gain on OREO operations
(1,996
(2,557
(1,064
(1,485
(720
Credit and debit card processing expenses
5,318
6,362
6,410
5,843
4,121
Communications
2,216
2,322
2,272
1,978
2,151
Other non-interest expenses
6,561
5,277
5,202
4,645
6,184
Total non-interest expenses
115,268
112,931
115,189
108,326
106,659
Non-interest expenses amounted to $115.3 million in the first quarter of 2023, an increase of $2.4 million from $112.9 million in the fourth quarter of 2022. The $2.4 million increase reflects, among other things, the following significant variances:
INCOME TAXES
The Corporation recorded an income tax expense of $31.9 million for the first quarter of 2023, compared to $33.4 million for the fourth quarter of 2022. The decrease was mainly related to lower pre-tax income when compared to the prior quarter.
The Corporation’s effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, remained flat at 31.2% for the first quarter of 2023 and fourth quarter of 2022. As of March 31, 2023, the Corporation had a deferred tax asset of $154.8 million, net of a valuation allowance of $176.0 million against the deferred tax assets. The Corporation’s banking subsidiary, FirstBank, had a deferred tax asset of $147.7 million, net of a valuation allowance of $139.1 million.
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:
36,410
42,772
43,036
44,588
48,818
Commercial mortgage
21,598
22,319
23,741
24,753
26,576
Commercial and Industrial
13,404
7,830
15,715
17,079
18,129
Construction
1,794
2,208
2,237
2,375
2,543
Consumer and finance leases
15,936
14,806
12,787
10,315
10,964
Total nonaccrual loans held for investment
89,142
89,935
97,516
99,110
107,030
OREO
32,862
31,641
38,682
41,706
42,894
Other repossessed property
4,743
5,380
4,936
3,840
3,823
Other assets (1)
2,203
2,202
2,193
2,809
2,727
Total non-performing assets (2)
128,950
129,158
143,327
147,465
156,474
Past due loans 90 days and still accruing (3)
74,380
80,517
81,790
94,485
118,798
Nonaccrual loans held for investment to total loans held for investment
0.77
0.78
0.86
0.88
0.96
Nonaccrual loans to total loans
Non-performing assets to total assets
0.68
0.69
0.76
0.79
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 $10.4 million as of March 31, 2023 (December 31, 2022 - $12.0 million; September 30, 2022 - $12.8 million; June 30, 2022 - $15.3 million; March 31, 2022 - $18.0 million).
(3)
These include rebooked loans, which were previously pooled into Government National Mortgage Association ("GNMA") securities, amounting to $7.1 million as of March 31, 2023 (December 31, 2022 - $10.3 million; September 30, 2022 - $8.0 million; June 30, 2022 - $10.8 million; March 31, 2022 - $9.5 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:
Partially offset by:
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 $94.5 million as of March 31, 2023, a decrease of $10.4 million, compared to $104.9 million as of December 31, 2022. 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 first quarter of 2023 and fourth quarter of 2022:
Quarter ended March 31,2023
Loans and Finance Leases
Debt Securities
Residential Mortgage Loans
Commercial and Construction Loans
Consumer Loans and Finance Leases
Total Loans and Finance Leases
Unfunded Loans Commitments
Held-to- Maturity
Available- for-Sale
Total ACL
Allowance for credit losses, beginning balance
62,760
70,278
127,426
260,464
4,273
8,286
458
273,481
Impact of adoption of ASU 2022-02
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
Allowance for credit losses, end of period
64,403
70,926
130,238
265,567
4,168
7,646
449
277,830
Amortized cost of loans and finance leases
2,811,528
5,359,512
3,406,945
11,577,985
Allowance for credit losses on loans to amortized cost
2.29
1.32
Quarter ended December 31, 2022
65,079
67,572
125,208
257,859
4,242
8,257
664
271,022
Provision for credit losses - (benefit) expense
(1,821
3,469
14,003
15,651
31
29
1
Net charge-offs
(498
(763
(11,785
(13,046
(207
(13,253
2,847,290
5,378,067
3,327,468
11,552,825
2.20
1.31
3.83
2.25
The main variances of the total ACL by main categories are discussed below:
Allowance for Credit Losses for Loans and Finance Leases
As of March 31, 2023, the ACL for loans and finance leases was $265.6 million, an increase of $5.1 million, from $260.5 million as of December 31, 2022. The ACL for commercial and construction loans remained relatively flat when compared to the previous quarter as a result of the following offsetting factors: reserve increases of $5.0 million for a new nonacccrual commercial and industrial participated loan in the Florida region in the power generation industry, and $1.1 million due to a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the commercial real estate price index (“CRE price index”); partially offset by reserve decreases of $6.1 million associated with the receipt of updated financial information of certain borrowers and the repayment of a $24.3 million adversely classified commercial and industrial participated loan in the Florida region. The ACL for consumer loans increased by $2.9 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios and the increase in historical charge-off levels. The ACL for residential mortgage loans increased by $1.6 million, in part related to a $2.1 million cumulative increase in the ACL, due to the adoption 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. This adjustment had a corresponding decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023.
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:
Residential mortgage
0.07%
0.13%
0.11%
0.15%
-0.03%
0.00%
-0.01%
-0.22%
0.19%
-0.07%
-0.10%
-0.17%
-1.82%
-0.09%
Consumer loans and finance leases
1.54%
1.44%
1.05%
0.91%
0.85%
Total loans
0.46%
0.31%
0.21%
0.24%
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 $13.3 million for the first quarter of 2023, or an annualized 0.46% of average loans, compared to $13.0 million, or an annualized 0.46% of average loans, in the fourth quarter of 2022. The increase of $0.3 million in net charge-offs included the following:
Allowance for Credit Losses for Unfunded Loan Commitments
The Corporation estimates expected credit losses over the contractual period during which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of March 31, 2023, the ACL for off-balance sheet credit exposures was $4.2 million, compared to $4.3 million as of December 31, 2022.
Allowance for Credit Losses for Held-to-Maturity Debt Securities
As of March 31, 2023, the ACL for held-to-maturity debt securities, which relates only to Puerto Rico municipal bonds, was $7.6 million, compared to $8.3 million as of December 31, 2022. The decrease on the ACL was mostly related to a reduction in qualitative reserves driven by updated financial information of certain bond issuers received during the first quarter of 2023.
LIQUIDITY
Cash and cash equivalents amounted to $823.6 million as of March 31, 2023, compared to $480.5 million as of December 31, 2022. When adding $2.4 billion of free high-quality liquid securities that could be liquidated or pledged within one day, the total core liquidity amounted to $3.2 billion as of March 31, 2023, or 16.77% of total assets, compared to $3.5 billion, or 19.02% of total assets as of December 31, 2022. In addition, as of March 31, 2023, the Corporation had $882.5 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 GSEs obligations that could be liquidated or pledged within one day, and available secured lines of credit with the FHLB to total assets) was approximately 21.42% of total assets as of March 31, 2023, compared to 22.48% of total assets as of December 31, 2022.
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 March 31, 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 March 31, 2023, the Corporation had $5.5 billion available to meet liquidity needs.
The Corporation’s total deposits, excluding brokered CDs, amounted to $15.8 billion as of March 31, 2023, compared to $16.0 billion as of December 31, 2022, including government deposits amounting to $2.7 billion and $2.8 billion, respectively, which are fully collateralized. As of March 31, 2023, $4.8 billion of these deposits are uninsured, which represent 30.13% of total deposits, compared to $4.9 billion, or 30.65% of total deposits, as of December 31, 2022. Brokered CDs amounted to $252.9 million as of March 31, 2023, compared to $105.8 million as of December 31, 2022. Refer to Table 10 below for additional information about the deposits composition.
STATEMENT OF FINANCIAL CONDITION
Total assets were approximately $19.0 billion as of March 31, 2023, up $342.6 million from December 31, 2022.
The following variances within the main components of total assets are noted:
Total liabilities were approximately $17.6 billion as of March 31, 2023, an increase of $262.5 million from December 31, 2022.
The increase in total liabilities was mainly due to:
Total stockholders’ equity amounted to $1.4 billion as of March 31, 2023, an increase of $80.1 million from December 31, 2022. The growth was driven by the $87.2 million increase 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 the earnings generated in the first quarter of 2023, partially offset by the repurchase of approximately 3.6 million shares of common stock for a total purchase price of approximately $50.0 million, $25.4 million in quarterly dividends declared to common stock shareholders, and the $1.3 million decrease related to the adoption of ASU 2022-02.
As of March 31, 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 16.33%, 16.33%, 19.02%, and 10.57%, respectively, as of March 31, 2023, compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.53%, 16.53%, 19.21%, and 10.70%, respectively, as of December 31, 2022.
Meanwhile, estimated CET1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank, were 16.65%, 17.45%, 18.71%, and 11.29%, respectively, as of March 31, 2023, compared to CET1 capital, tier 1 capital, total capital and leverage ratios of 16.84%, 17.65%, 18.90%, and 11.43%, respectively, as of December 31, 2022.
Tangible Common Equity (Non-GAAP)
On a non-GAAP basis, the Corporation’s tangible common equity ratio increased to 7.12% as of March 31, 2023, compared to 6.81% as of December 31, 2022. The increase in tangible common equity includes the effect of an $87.2 million increase 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, partially offset by capital return that consisted of $50.0 million in common stock repurchases and $25.4 million in common stock quarterly dividends declared during the first quarter of 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 equity - GAAP
1,405,593
1,325,540
1,265,333
1,557,916
1,781,102
Goodwill
(38,611
Purchased credit card relationship intangible
(86
(205
(376
(599
(873
Core deposit intangible
(18,987
(20,900
(22,818
(24,736
(26,648
Insurance customer relationship intangible
(13
(51
(89
(127
Tangible common equity
1,347,909
1,265,811
1,203,477
1,493,881
1,714,843
Tangible Assets:
Total assets - GAAP
18,977,114
18,634,484
18,442,034
19,531,635
19,929,037
Tangible assets
18,919,430
18,574,755
18,380,178
19,467,600
19,862,778
Common shares outstanding
179,789
182,709
186,258
191,626
198,701
Tangible common equity ratio
7.12
6.81
6.55
7.67
8.63
Tangible book value per common share
7.50
6.93
6.46
7.80
Exposure to Puerto Rico Government
As of March 31, 2023, the Corporation had $340.0 million of direct exposure to the Puerto Rico government, its municipalities, and public corporations, an increase of $1.1 million when compared to $338.9 million as of December 31, 2022. As of March 31, 2023, approximately $183.4 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 $113.1 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 $10.2 million in a loan extended to an affiliate of the Puerto Rico Electric Power Authority and $30.0 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 $2.2 million as of March 31, 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 March 31, 2023, of which $0.4 million is due to credit deterioration.
The aforementioned exposure to municipalities in Puerto Rico included $165.8 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 March 31, 2023, the ACL for these securities was $7.6 million, compared to $8.3 million as of December 31, 2022.
As of March 31, 2023, the Corporation had $2.2 billion of public sector deposits in Puerto Rico, compared to $2.3 billion as of December 31, 2022. Approximately 25% of the public sector deposits as of March 31, 2023, were from municipalities and municipal agencies in Puerto Rico, and 75% 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 Tuesday, April 25, 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 842558. 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 April 25, 2024. A telephone replay will be available one hour after the end of the conference call through May 25, 2023, at (866) 813-9403. The replay access code is 342184.
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 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; the effect of continued changes in the fiscal and monetary policies and regulations of the U.S. federal government and the Puerto Rico and other governments, including those determined by the Federal Reserve Board, the Federal Reserve Bank of New York, the 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; 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 long-term economic and other effects of the COVID-19 pandemic and their impact on the Corporation’s business, operations, and financial condition; the Corporation’s ability 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 any, which may result in misuse or misappropriation of confidential or proprietary information, disruption, or damage to our systems, 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 uncertainty about the effect of the cessation of the London Interbank Offered Rate; 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
822,542
478,480
Money market investments:
Time deposits with other financial institutions
300
Other short-term investments
759
1,725
Total money market investments
1,059
2,025
Debt securities available for sale, at fair value (ACL of $449 as of March 31, 2023;
$458 as of December 31, 2022)
5,589,256
5,599,520
Debt securities held to maturity, at amortized cost, net of ACL of $7,646 as of March 31, 2023
and $8,286 as of December 31, 2022 (fair value 2023 - $419,752; 2022 - $427,115)
423,749
429,251
Total debt securities
6,013,005
6,028,771
Equity securities
66,714
55,289
Total investment securities
6,079,719
6,084,060
Loans, net of ACL (March 31, 2023 - $265,567; December 31, 2022 - $260,464)
11,312,418
11,292,361
Loans held for sale, at lower of cost or market
15,183
12,306
Total loans, net
11,327,601
11,304,667
Accrued interest receivable on loans and investments
63,841
69,730
Premises and equipment, net
137,580
142,935
Deferred tax asset, net
154,780
155,584
38,611
Other intangible assets
19,073
21,118
Other assets
299,446
305,633
Total assets
LIABILITIES
Deposits:
Non-interest-bearing deposits
6,024,304
6,112,884
Interest-bearing deposits
10,027,661
10,030,583
Total deposits
16,051,965
16,143,467
Securities sold under agreements to repurchase
172,982
75,133
Advances from the FHLB
925,000
675,000
Other borrowings
183,762
Accounts payable and other liabilities
237,812
231,582
Total liabilities
17,571,521
17,308,944
STOCKHOLDERSʼ EQUITY
Common stock, $0.10 par value, 223,663,116 shares issued (March 31, 2023 - 179,788,698 shares outstanding;
December 31, 2022 - 182,709,059 shares outstanding)
22,366
Additional paid-in capital
959,912
970,722
Retained earnings
1,688,176
1,644,209
Treasury stock, at cost (March 31, 2023 - 43,874,418 shares; December 31, 2022 - 40,954,057 shares)
(547,311
(506,979
Accumulated other comprehensive loss
(717,550
(804,778
Total stockholdersʼ equity
Total liabilities and stockholdersʼ equity
Table 2 – Condensed Consolidated Statements of Income
(In thousands, except per share information)
Net interest income:
Provision for credit losses - expense (benefit):
Loans
(16,989
Unfunded loan commitments
(178
Debt securities
(649
30
3,365
Net interest income after provision for credit losses
185,383
189,861
199,426
Non-interest income:
Other non-interest income
9,247
7,253
8,608
Total non-interest income
Non-interest expenses:
Employees’ compensation and benefits
Professional service fees
11,973
12,669
10,594
Insurance and supervisory fees
4,501
3,973
3,908
8,777
7,599
8,335
Income tax expense
31,935
33,356
43,025
Net income
70,698
73,174
82,600
Net income attributable to common stockholders
Earnings per common share:
Basic
0.39
0.40
0.42
Diluted
0.41
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
0.10
Average shares outstanding
180,215
183,649
198,130
Average shares outstanding diluted
181,236
184,847
199,537
Book value per common share
7.82
7.25
8.96
Tangible book value per common share (1)
Common Stock Price: End of period
11.42
12.72
13.12
Selected Financial Ratios (In Percent):
Profitability:
Return on Average Assets
1.55
1.58
1.65
Return on Average Common Equity
21.00
22.37
16.64
Interest Rate Spread (2)
3.84
3.77
Net Interest Margin (2)
4.48
4.52
3.96
Efficiency ratio (3)
49.39
48.02
48.82
Capital and Other:
Average Total Equity to Average Total Assets
7.36
7.05
9.94
Total capital
19.02
19.21
20.44
Common equity Tier 1 capital
16.33
16.53
17.71
Tier 1 capital
Leverage
10.57
10.70
10.35
Tangible common equity ratio (1)
Dividend payout ratio
35.69
30.12
23.81
Basic liquidity ratio (4)
21.42
22.48
32.55
Core liquidity ratio (5)
16.77
26.50
Loan to deposit ratio
72.22
71.64
64.18
Uninsured deposits, excluding fully collateralized deposits, to total deposits
30.13
30.86
32.72
Asset Quality:
Allowance for credit losses for loans and finance leases to total loans
held for investment
2.21
Net charge-offs (annualized) to average loans outstanding
0.46
0.24
Provision for credit losses for loans and finance leases - expense (benefit)
to net charge-offs
122.51
119.97
(257.64
Allowance for credit losses for loans and finance leases to total nonaccrual loans
297.91
289.61
229.33
held for investment, excluding residential estate loans
503.62
552.26
421.64
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 first quarter of 2023 and fourth and first quarters of 2022. 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 loss (gain) on derivative instruments
6
5
(15
Interest income excluding valuations
242,402
233,457
197,839
Tax-equivalent adjustment
6,347
7,391
7,219
Interest income on a tax-equivalent basis and excluding valuations
248,749
240,848
205,058
Interest expense - GAAP
Net interest income - GAAP
Net interest income excluding valuations
200,891
205,578
185,609
Net interest income on a tax-equivalent basis and excluding valuations
207,238
212,969
192,828
Average Interest-Earning Assets
Average Interest-Bearing Liabilities
Average yield on interest-earning assets excluding valuations
Average rate on interest-bearing liabilities excluding valuations
Net interest spread excluding valuations
Net interest margin excluding valuations
Average yield on interest-earning assets on a tax-equivalent basis
and excluding valuations
5.38
5.12
4.21
Average rate on interest-bearing liabilities
Net interest spread on a tax-equivalent basis and excluding valuations
Net interest margin on a tax-equivalent basis and excluding valuations
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)
March 31,
December 31,
2023
2022
Interest-earning assets:
Money market and other short-term investments
404,249
394,471
1,835,766
4,650
3,444
820
4.67
3.46
0.18
Government obligations (2)
2,909,976
2,910,733
2,736,095
10,765
10,386
8,232
1.50
1.42
1.22
Mortgage-backed securities
3,864,145
3,973,307
4,041,975
19,396
20,838
19,420
2.04
2.08
1.95
FHLB stock
40,838
22,292
21,465
421
284
287
4.18
5.05
5.42
Other investments
13,139
13,490
11,786
139
48
21
4.29
1.41
0.72
Total investments (3)
35,371
35,000
28,780
1.98
1.90
1.35
Residential mortgage loans
2,835,240
2,839,268
2,961,456
39,794
39,225
40,687
5.69
5.48
5.57
Construction loans
146,041
128,845
114,732
2,676
2,227
1,524
7.43
6.86
5.39
C&I and commercial mortgage loans
5,167,727
5,127,028
5,103,870
85,885
81,464
62,004
6.74
6.30
4.93
Finance leases
735,500
691,585
588,200
13,809
12,769
10,912
7.61
7.33
7.52
Consumer loans
2,634,891
2,578,237
2,338,597
71,214
70,163
61,151
10.96
10.80
10.60
Total loans (4) (5)
213,378
205,848
176,278
7.51
7.19
6.44
Total interest-earning assets
Interest-bearing liabilities:
Time deposits
2,342,360
2,180,928
2,363,045
10,782
6,055
4,421
1.87
1.10
Brokered CDs
166,698
47,304
91,713
1,587
286
477
3.86
2.40
2.11
Other interest-bearing deposits
7,544,901
7,909,759
8,132,149
17,516
14,696
2,754
0.94
0.74
91,004
139,740
241,111
1,069
1,407
2,182
4.76
3.99
3.67
629,167
220,652
200,000
7,176
2,469
1,063
4.63
4.44
2.16
185,393
3,381
2,966
1,333
7.46
6.35
2.94
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 $3.1 million, $2.7 million, and $2.6 million for the quarters ended March 31, 2023, December 31, 2022, and March 31, 2022, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio.
Table 6 – Loan Portfolio by Geography
As of March 31,2023
Puerto Rico
Virgin Islands
United States
Consolidated
2,205,659
176,123
429,746
Commercial loans:
44,297
3,898
95,469
143,664
Commercial mortgage loans
1,766,479
62,694
524,486
2,353,659
Commercial and Industrial loans
1,872,215
69,013
920,961
2,862,189
Commercial loans
3,682,991
135,605
1,540,916
755,482
2,579,532
63,231
8,700
2,651,463
Loans held for investment
9,223,664
374,959
1,979,362
Loans held for sale
14,830
353
9,238,494
1,979,715
11,593,168
As of December 31, 2022
2,237,983
179,917
429,390
30,529
4,243
98,181
132,953
1,768,890
65,314
524,647
2,358,851
1,791,235
68,874
1,026,154
2,886,263
3,590,654
138,431
1,648,982
718,230
2,537,840
61,419
9,979
2,609,238
9,084,707
379,767
2,088,351
9,097,013
11,565,131
Table 7 – Non-Performing Assets by Geography
Total
22,924
6,069
7,417
13,677
7,921
4,589
1,163
7,652
737
1,057
15,483
306
147
57,410
16,516
15,216
28,323
4,539
4,620
112
11
92,556
21,167
15,227
72,000
2,380
28,857
6,614
7,301
14,341
7,978
5,859
1,179
792
831
1,377
14,142
469
195
64,030
17,617
8,288
28,135
3,475
76
99,642
21,168
8,348
76,417
4,100
Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities portfolio.
Excludes PCD loans previously accounted for under 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 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 $10.4 million as of March 31, 2023 (December 31, 2022 - $12.0 million).
These include rebooked loans, which were previously pooled into GNMA securities, amounting to $7.1 million as of March 31, 2023 (December 31, 2022 - $10.3 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.
Table 8 – Allowance for Credit Losses on Loans and Finance Leases
Allowance for credit losses on loans and finance leases, beginning of period
269,030
Provision for credit losses on loans and finance leases expense (benefit)
Net (charge-offs) recoveries of loans and finance leases:
(1,146
150
10
(28
(1,360
745
63
587
8
(6,208
(6,594
Allowance for credit losses on loans and finance leases, end of period
245,447
Allowance for credit losses on loans and finance leases to period end total
loans held for investment
2.29%
2.25%
2.21%
Net charge-offs (annualized) to average loans outstanding during the period
Provision for credit losses on loans and finance leases expense (benefit) to net charge-offs during the period
1.23x
1.20x
-2.58x
Table 9 – Annualized Net Charge-Offs (Recoveries) to Average Loans
March 31,2023
March 31,2022
Table 10 – Deposits
2,418,611
2,250,876
Interest-bearing saving and checking accounts
7,356,145
7,673,881
Non-interest bearing deposits
Total deposits, excluding brokered CDs (1)
15,799,060
16,037,641
252,905
105,826
Total deposits, excluding brokered CDs and government deposits
13,125,868
13,268,585
As of March 31, 2023 and December 31, 2022, government deposits amounted to $2.7 billion and $2.8 billion, respectively.
First BanCorp. Ramon Rodriguez Senior Vice President Corporate Strategy and Investor Relations ramon.rodriguez@firstbankpr.com (787) 729-8200 Ext. 82179