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First BanCorp. Announces Earnings for the Quarter Ended June 30, 2022

  • Net income of $74.7 million, or $0.38 per diluted share, for the second quarter of 2022, compared to $82.6 million, or $0.41 per diluted share, for the first quarter of 2022.

  • Income before income taxes of $108.8 million for the second quarter of 2022, compared to $125.6 million for the first quarter of 2022.

  • On a non-GAAP basis, adjusted pre-tax, pre-provision income of $118.8 million for the second quarter of 2022, compared to $111.8 million for the first quarter of 2022.

  • Net interest income increased to $196.2 million for the second quarter of 2022, compared to $185.6 million for the first quarter of 2022, primarily due to the upward repricing of variable-rate commercial loans and interest-bearing cash balances maintained at the Federal Reserve Bank of New York (the "FED"), as well as a decrease in the premium amortization expense on U.S. agencies mortgage-backed securities ("MBS"). Net interest margin increased to 4.00% for the second quarter of 2022, compared to 3.81% for the first quarter of 2022.

  • Provision for credit losses was an expense of $10.0 million ($6.3 million after-tax) or a decrease of $0.05 per diluted share for the second quarter of 2022, reflecting an overall increase in the loan portfolio, mainly in the auto loans and finance lease portfolios, and increased economic uncertainty that is reflected in the forecast of certain macro-economic variables and the related qualitative reserves. The provision for credit losses for the first quarter of 2022 was a net benefit of $13.8 million ($8.6 million after-tax) or an increase of $0.07 per diluted share.

  • Non-interest income decreased by $2.0 million to $30.9 million for the second quarter of 2022, compared to $32.9 million for the first quarter of 2022. The decrease was mostly driven by seasonal contingent insurance commissions recognized in the first quarter of 2022.

  • Non-interest expenses increased by $1.6 million to $108.3 million for the second quarter of 2022, compared to $106.7 million for the first quarter of 2022.

  • Income tax expense was $34.1 million for the second quarter of 2022, compared to $43.0 million for the first quarter of 2022. The variance was primarily related to lower pre-tax income when compared to the prior quarter.

  • Credit quality variances:

    • Non-performing assets decreased by $9.0 million to $147.5 million as of June 30, 2022, compared to $156.5 million as of March 31, 2022. The decrease was mainly driven by a $4.2 million reduction in nonaccrual residential mortgage loans and a $3.0 million reduction in nonaccrual commercial and construction loans, primarily reflecting payoffs and paydowns received during the second quarter of 2022.

    • An annualized net charge-offs to average loans ratio of 0.21% for the second quarter of 2022, compared to 0.24% for the first quarter of 2022.

  • Total deposits, excluding brokered CDs and government deposits, decreased by $360.2 million to $14.1 billion as of June 30, 2022, primarily in the Puerto Rico region.

  • Government deposits increased in the second quarter by $176.6 million and totaled $3.0 billion as of June 30, 2022, reflecting increases of $98.1 million in the Virgin Islands region, $77.2 million in the Puerto Rico region, and $1.3 million in the Florida region.

  • Brokered CDs decreased by $11.7 million during the second quarter to $74.1 million as of June 30, 2022.

  • Total loans increased in the second quarter by $103.9 million to $11.2 billion as of June 30, 2022. The variance consisted of increases of $130.7 million in consumer loans and $18.5 million in commercial and construction loans, partially offset by a $45.3 million decrease in residential mortgage loans. Excluding the $40.3 million decrease in the carrying value of the Small Business Administration Paycheck Protection Program ("SBA PPP") loan portfolio, the growth in the commercial and construction loans portfolio was $58.8 million.

  • Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $1.4 billion in the second quarter of 2022, an increase of $280.8 million compared to the first quarter of 2022. The increase mainly reflects a $237.1 million increase in commercial and construction loan originations and a $39.7 million increase in consumer loan originations.

  • During the second quarter of 2022, First BanCorp. repurchased approximately 7.07 million shares of its common stock through open market transactions for a total purchase price of approximately $100 million under the $350 million stock repurchase program announced on April 27, 2022.

  • Capital ratios remained higher than required regulatory levels for bank holding companies and well-capitalized banks. Estimated total capital, common equity tier 1 capital ("CET1"), tier 1 capital, and leverage ratios were 19.98%, 17.23%, 17.23%, and 10.18%, respectively, as of June 30, 2022. On a non-GAAP basis, the tangible common equity ratio was 7.67% as of June 30, 2022.

SAN JUAN, Puerto Rico, July 22, 2022--(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 net income of $74.7 million, or $0.38 per diluted share, for the second quarter of 2022, compared to $82.6 million, or $0.41 per diluted share, for the first quarter of 2022, and $70.6 million, or $0.33 per diluted share, for the second quarter of 2021. Financial results for the second quarter of 2022 include an expense of $10.0 million ($6.3 million after-tax) or a decrease of $0.05 per diluted share recorded to the provision for credit losses, compared to a net benefit of $13.8 million ($8.6 million after-tax) or an increase of $0.07 per diluted share for the first quarter of 2022.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: "We continued to perform exceptionally well during the second quarter by leveraging our market position to strategically grow the balance sheet and continue improving the banking experience of our customers. We earned $74.7 million or $0.38 per diluted share during the quarter and reached a record pre-tax pre-provision income of $118.8 million, up 6.2% when compared to the first quarter of 2022 and 23% when compared to the second quarter last year. These results were achieved within the context of an uncertain global economic backdrop and highlight the strength of our franchise.

We continued to register loan growth across our targeted business segments during the quarter. Loan portfolio balances, excluding SBA PPP loans, grew by $144.2 million when compared to the first quarter of 2022, driven by increases of $130.7 million in consumer loans and $58.8 million in construction and commercial loans, partially offset by a decrease of $45.3 million in residential mortgages. Total loan originations, excluding credit card utilization activity, were very strong at $1.4 billion, an increase of $280.8 million when compared to the first quarter of 2022 primarily attributed to higher commercial and consumer loan originations. We expect that healthy loan pipelines coupled with steady recovery trends in our main market should result in sustained loan originations throughout the second half of the year. Core deposits, net of government deposits and brokered CDs, decreased by $360.2 million when compared to the first quarter of 2022, primarily in the Puerto Rico region, while government deposits grew by $176.6 million driven by increases in both Puerto Rico and the Virgin Islands. Average deposit balances decreased slightly during the quarter but are still 31% above pre-pandemic levels. Asset quality continued to improve with non-performing assets reaching 0.76% of total assets. Notwithstanding, we recorded an expense of $10.0 million to the provision for credit losses, primarily reflecting an overall increase in the loan portfolio and increased uncertainty that is reflected in the forecast of certain macroeconomic variables. We remain attentive to the potential impact of global inflation in our markets.

Our strategic focus remains centered around providing the best omnichannel experience to our clients. During the quarter, digital engagement continued to progress nicely with retail digital banking users growing by 4% and continuing to capture over 40% of deposit transactions through digital and self-service channels. Also, mobile Digital Banking users grew by 50% since the application was launched in April of this year. Most importantly, we partnered with an established fintech firm to provide a fully digital commercial lending platform for small business loans. We now have the ability to process consumer, mortgage, and small business loan applications through self-service digital platforms.

Finally, we continued to execute on our capital deployment plan and repurchased approximately 7.07 million shares of common stock for a total purchase price of $100 million under the previously-announced $350 million stock repurchase program. We believe that our fortress balance sheet, complemented by strong economic tailwinds in Puerto Rico, will contribute to the mitigation of rising market challenges and allow us to continue supporting our clients and delivering value to shareholders."

NON-GAAP DISCLOSURES

This press release includes certain non-GAAP financial measures, including adjusted net income, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, tangible common equity, tangible book value per common share, certain capital ratios, and certain other financial measures that exclude the effect of items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the "Special Items"), and should be read in conjunction with the discussion below in Basis of Presentation – Use of Non-GAAP Financial Measures, 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 second and first quarters of 2022 did not include any significant Special Items. The financial results for the second quarter of 2021 included the significant Special Items discussed below.

Quarter ended June 30, 2021

- Merger and restructuring costs of $11.0 million ($6.9 million after-tax) in connection with the Banco Santander Puerto Rico ("BSPR") acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the second quarter of 2021 included approximately $1.7 million related to voluntary employee separation programs implemented in the Puerto Rico region and approximately $2.1 million related to service contracts cancellation penalties. In addition, merger and restructuring costs included expenses related to system conversions and other integration related efforts, and accelerated depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and restructuring plan.

- Costs of $1.1 million ($0.7 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security measures.

NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)

Net income was $74.7 million for the second quarter of 2022, or $0.38 per diluted share, compared to $82.6 million for the first quarter of 2022, or $0.41 per diluted share. The following table shows the net income and earnings per diluted share for the second and first quarters of 2022 and reconciles, for the second quarter of 2021, 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.

Quarter Ended

June 30, 2022

March 31, 2022

June 30, 2021

(In thousands, except per share information)

Net income, as reported (GAAP)

$

74,695

$

82,600

$

70,558

Adjustments:

Merger and restructuring costs

-

-

11,047

COVID-19 pandemic-related expenses

-

-

1,105

Income tax impact of adjustments (1)

-

-

(4,557

)

Adjusted net income (Non-GAAP)

$

74,695

$

82,600

$

78,153

Preferred stock dividends

-

-

(669

)

Adjusted net income attributable to common stockholders (Non-GAAP)

$

74,695

$

82,600

$

77,484

Weighted-average diluted shares outstanding

195,366

199,537

214,609

Earnings Per Share - diluted (GAAP)

$

0.38

$

0.41

$

0.33

Adjusted Earnings Per Share - diluted (Non-GAAP)

$

0.38

$

0.41

$

0.36

(1) See Basis of Presentation for the individual tax impact related to the above adjustments.

INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)

Income before income taxes was $108.8 million for the second quarter of 2022, compared to $125.6 million for the first quarter of 2022. Adjusted pre-tax, pre-provision income was $118.8 million for the second quarter of 2022, compared to $111.8 million for the first quarter of 2022. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters:

Quarter Ended

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

(Dollars in thousands)

Income before income taxes

$

108,798

$

125,625

$

115,260

$

112,735

$

110,650

Add/Less: Provision for credit losses expense (benefit)

10,003

(13,802

)

(12,209

)

(12,082

)

(26,155

)

Add: COVID-19 pandemic-related expenses

-

-

4

640

1,105

Add: Merger and restructuring costs

-

-

1,853

2,268

11,047

Adjusted pre-tax, pre-provision income (1)

$

118,801

$

111,823

$

104,908

$

103,561

$

96,647

Change from most recent prior quarter (amount)

$

6,978

$

6,915

$

1,347

$

6,914

$

10,251

Change from most recent prior quarter (percentage)

6.2

%

6.6

%

1.3

%

7.2

%

11.9

%

(1) Non-GAAP financial measure. See Basis of Presentation below for 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:

Quarter Ended

(Dollars in thousands)

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

Net Interest Income

Interest income

$

208,625

$

197,854

$

198,435

$

200,172

$

201,459

Interest expense

12,439

12,230

14,297

15,429

16,676

Net interest income

$

196,186

$

185,624

$

184,138

$

184,743

$

184,783

Average Balances

Loans and leases

$

11,102,310

$

11,106,855

$

11,108,997

$

11,223,926

$

11,560,731

Total securities, other short-term investments and interest-bearing cash balances

8,568,022

8,647,087

9,140,313

9,134,121

7,898,975

Average interest-earning assets

$

19,670,332

$

19,753,942

$

20,249,310

$

20,358,047

$

19,459,706

Average interest-bearing liabilities

$

11,567,228

$

11,211,780

$

11,467,480

$

11,718,557

$

12,118,631

Average Yield/Rate

Average yield on interest-earning assets - GAAP

4.25

%

4.06

%

3.89

%

3.90

%

4.15

%

Average rate on interest-bearing liabilities - GAAP

0.43

%

0.44

%

0.49

%

0.52

%

0.55

%

Net interest spread - GAAP

3.82

%

3.62

%

3.40

%

3.38

%

3.60

%

Net interest margin - GAAP

4.00

%

3.81

%

3.61

%

3.60

%

3.81

%

Net interest income amounted to $196.2 million for the second quarter of 2022, an increase of $10.6 million, compared to $185.6 million for the first quarter of 2022. The increase in net interest income was mainly due to:

  • A $3.2 million increase in interest income on investment securities, primarily reflecting the effects of a lower U.S. agencies MBS premium amortization expense associated to lower actual and expected prepayments, and the effects of higher reinvestment yields in the investment securities portfolio.

  • A $3.1 million increase in interest income on consumer loans and finance leases, primarily due to an increase of approximately $105.8 million in the average balance of this portfolio, which resulted in an increase in interest income of approximately $2.5 million and the favorable impact of one additional day in the second quarter, which resulted in an increase in interest income of approximately $0.8 million.

  • A $2.6 million increase in interest income on commercial and construction loans, primarily due to: (i) the upward repricing of variable-rate commercial and construction loans, which resulted in an increase of approximately $3.5 million in interest income, (ii) the effects in the second quarter of interest income of approximately $0.8 million realized from deferred interest recognized on three commercial loans paid off, and (iii) the positive effect of one additional day in the second quarter, which resulted in an increase of approximately $0.7 million in this portfolio, partially offset by (iv) a $1.2 million decrease in interest income from SBA PPP loans and (v) $1.1 million collected on a nonaccrual commercial loan in the first quarter of 2022.

  • A $2.1 million increase in interest income from interest-bearing cash balances, which consisted primarily of deposits maintained at the FED, with an average yield of 0.75% during the second quarter of 2022 compared to 0.18% in the first quarter of 2022, mainly attributable to increases in the federal funds target rate during the second quarter of 2022.

Partially offset by:

  • A $0.2 million decrease in interest income on residential mortgage loans primarily due to a decrease of $70.2 million in the average balance of this portfolio, partially offset by an improvement in the average yield of the residential mortgage portfolio.

  • A $0.2 million increase in interest expense, which includes $0.6 million mainly related to the upward repricing of floating rate junior subordinated debentures and, to a lesser extent, $452.2 million in average balances of demand deposit accounts that were converted to interest bearing at the end of the first quarter of 2022, partially offset by a $0.3 million decrease due to the full effect in the second quarter of 2022 associated with the repayment of a $100 million repurchase agreement that carried a cost of 2.26% and matured early in the first quarter of 2022.

Net interest margin for the second quarter of 2022 increased to 4.00%, when compared to 3.81% for the first quarter of 2022.

NON-INTEREST INCOME

The following table sets forth information concerning non-interest income for the last five quarters:

Quarter Ended

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

(In thousands)

Service charges and fees on deposit accounts

$

9,466

$

9,363

$

9,502

$

8,690

$

8,788

Mortgage banking activities

4,082

5,206

5,223

6,098

6,404

Other operating income

17,393

18,289

15,653

15,158

14,692

Non-interest income

$

30,941

$

32,858

$

30,378

$

29,946

$

29,884

Non-interest income amounted to $30.9 million for the second quarter of 2022, compared to $32.9 million for the first quarter of 2022. The $2.0 million decrease in non-interest income was mainly due to:

  • A $2.3 million decrease in insurance income, included as part of Other operating income in the table above, reflecting the effect of seasonal contingent commissions of $3.0 million recorded in the first quarter of 2022 based on the prior year’s production of insurance policies.

  • A $1.1 million decrease in revenues from mortgage banking activities, mainly driven by a decrease in net realized gains on sales of residential mortgage loans in the secondary market due to a lower volume of sales. During the second and first quarters of 2022, net gains of $2.2 million and $3.5 million, respectively, were recognized as a result of Government National Mortgage Association ("GNMA") securitization transactions and whole loan sales to U.S. government-sponsored entities ("GSEs") amounting to $64.2 million and $93.9 million, respectively.

Partially offset by:

  • A $0.6 million net increase in transactional fee income from credit and debit cards, point-of-sale terminals ("POS"), ATMs, and merchant transactions, mainly due to higher transactional volumes.

  • A $0.9 million gain on the sale of a banking facility related to branch consolidation efforts.

NON-INTEREST EXPENSES

The following table sets forth information concerning non-interest expenses for the last five quarters:

Quarter Ended

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

(In thousands)

Employees' compensation and benefits

$

51,304

$

49,554

$

49,681

$

50,220

$

49,714

Occupancy and equipment

21,505

22,386

21,589

23,306

24,116

Deposit insurance premium

1,466

1,673

1,253

1,381

1,922

Other insurance and supervisory fees

2,303

2,235

2,127

2,249

2,360

Taxes, other than income taxes

4,689

5,018

5,138