- Net income of $41.3 million, or $0.19 per diluted share, for the second quarter of 2019, compared to $43.3 million, or $0.20 per diluted share, for the first quarter of 2019.
- On a non-GAAP basis, adjusted net income for the second quarter of 2019 increased by $3.8 million to $40.8 million, or $0.18 per diluted share (which excludes the effect of events that are discussed in the Special Items section below and consist 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), compared to adjusted net income of $37.0 million for the first quarter of 2019, or $0.17 per diluted share.
- Income before income taxes of $59.3 million for the second quarter of 2019, compared to $60.9 million for the first quarter of 2019.
- On a non-GAAP basis, adjusted pre-tax, pre-provision income of $71.0 million for the second quarter of 2019, compared to $70.4 million for the first quarter of 2019.
- Net interest income increased by $2.3 million to $142.5 million for the second quarter of 2019, compared to $140.2 million for the first quarter of 2019, primarily due to the growth in the average volume of consumer and commercial performing loan portfolios.
- Net interest margin was 4.90% for the second quarter of 2019, relatively flat compared to 4.92% for the first quarter of 2019.
- Provision for loan and lease losses increased by $0.7 million to $12.5 million for the second quarter of 2019, compared to $11.8 million for the first quarter of 2019.
- Non-interest income decreased by $0.3 million to $22.2 million for the second quarter of 2019 compared to $22.5 million for the first quarter of 2019, primarily due to the effect in the first quarter of 2019 of seasonal insurance contingent commissions of $2.7 million, partially offset by higher revenues in the second quarter of 2019 from mortgage banking activities and an increase in fee-based income from credit and debit cards interchange fees.
- Non-interest expenses increased by $2.9 million to $92.9 million for the second quarter of 2019, compared to $90.0 million for the first quarter of 2019.
- Income tax expense of $18.0 million for the second quarter of 2019, compared to $17.6 million for the first quarter of 2019.
- Credit quality variances:
- Non-performing assets (“NPAs”) decreased in the quarter by $30.8 million, to $384.1 million as of June 30, 2019.
- Non-performing loan inflows amounted to $23.2 million in the second quarter of 2019, compared to inflows of $24.1 million in the first quarter of 2019.
- The annualized net charge-off rate was 1.07% for the second quarter of 2019, compared to 1.10% for the first quarter of 2019.
- Total deposits, excluding brokered certificates of deposit (“CDs”) and government deposits, decreased by $34.5 million to $7.6 billion as of June 30, 2019, reflecting decreases of $21.8 million in the Virgin Islands and $18.8 million in Florida, partially offset by a $6.1 million increase in Puerto Rico.
- Brokered CDs increased in the quarter by $6.0 million to $515.7 million as of June 30, 2019.
- Government deposits increased in the quarter by $139.9 million to $1.0 billion as of June 30, 2019, reflecting an increase of $101.2 million in Puerto Rico, primarily related to an increase in the balance of transactional accounts of certain municipalities, and a $38.7 million increase in the Virgin Islands.
- Total loans increased in the quarter by $117.6 million to $9.1 billion as of June 30, 2019. The increase consisted of growth of $97.6 million in the consumer loan portfolio, primarily in auto loans, finance leases, personal loans, and credit card loans in Puerto Rico, and an increase of $75.1 million in commercial and construction loans, reflecting increases in all regions. These increases were partially offset by a decline of $55.1 million in residential mortgage loans.
- Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $885.4 million in the second quarter of 2019, compared to $881.5 million in the first quarter of 2019. The increase consisted of a $19.7 million increase in consumer loan originations and a $10.9 million increase in residential mortgage loan originations, partially offset by a $26.6 million reduction in commercial and construction loan originations, primarily reflected in the Florida region.
- Total capital, common equity Tier 1 capital (“CET1”), Tier 1 capital, and leverage ratios of 24.25%, 20.63%, 21.03%, and 15.64%, respectively, as of June 30, 2019. The tangible common equity ratio was 16.64% as of June 30, 2019.
SAN JUAN, Puerto Rico–(BUSINESS WIRE)–First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of $41.3 million, or $0.19 per diluted share, for the second quarter of 2019, compared to $43.3 million, or $0.20 per diluted share, for the first quarter of 2019, and $31.0 million, or $0.14 per diluted share, for the second quarter of 2018.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We reported another strong quarter of core earnings with net income of $41.3 million or $0.19 per share. Pre-tax, pre-provision income reached another record level at $71 million this quarter. Franchise metrics continue to move in a positive direction. Our loan portfolio grew $118 million, representing our fourth consecutive quarter of loan growth. On a year-over-year basis the loan portfolio has grown over $425 million, almost 5%, reflecting a 19% increase in the consumer portfolio, a 7% increase in the commercial and construction portfolio, and a decrease in the residential loan portfolio of approximately 5%, consistent with previously mentioned strategies. Origination activity was healthy at $885 million and the pipeline for the remainder of the year continues to be strong.
We continue achieving organic reductions in NPAs with a $31 million reduction during the quarter, a 7% decrease which resulted in a ratio of NPAs to asset of 3.06%. Year-over-year we have reduced our NPAs by $237 million, or 38%. We have achieved this through organic reductions with minimal impact on our earnings. Inflows to NPAs for the quarter declined and credit quality improved in almost every asset class.
Our capital continues to grow with tangible book value now at $9.57 per share and our common equity tier 1 capital ratio is 20.6%. Our organization is poised for growth and our teams are well prepared for executing on opportunities within our markets.”
SPECIAL ITEMS
The financial results for the second and first quarters of 2019 and the second quarter of 2018 include the following 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”):
Quarter ended June 30, 2019
– A $0.8 million ($0.5 million after-tax) benefit resulting from hurricane-related insurance recoveries related to impairments, repairs and maintenance costs incurred on facilities in the British Virgin Islands.
Quarter ended March 31, 2019
– A $6.4 million ($4.0 million after-tax) positive effect in earnings related to loan loss reserve releases resulting from revised estimates of the hurricane-related qualitative reserves associated with the effects of Hurricanes Irma and Maria, primarily related to consumer and commercial loans.
– A $2.3 million expense recovery related to an employee retention benefit payment (the “Benefit”) received by the Bank by virtue of the Disaster Tax Relief and Airport Extension Act of 2017, as amended (the “Act”). The Corporation recorded the Benefit as an offset to the employees’ compensation and benefits expenses recognized in the first quarter of 2019. See Non-interest expenses below for additional information.
Quarter ended June 30, 2018
– A $1.4 million ($0.9 million after-tax) positive effect in earnings related to a $2.1 million net loan loss reserve release resulting from revised estimates of the hurricane-related qualitative reserves associated with the effects of Hurricanes Irma and Maria, primarily related to commercial loans, partially offset by $0.7 million of hurricane-related expenses recorded in the second quarter of 2018.
The following table reconciles for the second and first quarters of 2019 and the second quarter of 2018 the reported net income to adjusted net income and adjusted earnings per share, non-GAAP financial measures that exclude the Special Items identified above:
| Quarter Ended | Quarter Ended | Quarter Ended | |||||
| (In thousands) | June 30, 2019 | March 31, 2019 | June 30, 2018 | ||||
| Net income, as reported (GAAP) |
$ 41,287 |
$ 43,314 |
$ 31,032 |
||||
| Adjustments: | |||||||
| Hurricane-related loan loss reserve release |
– |
(6,425) |
(2,057) |
||||
| Hurricane-related expenses |
– |
– |
654 |
||||
| Benefit from hurricane-related insurance recoveries |
(820) |
– |
– |
||||
| Employee retention benefit – Disaster Tax Relief and Airport Extension Act of 2017 |
– |
(2,317) |
– |
||||
| Income tax impact of adjustments (1) |
308 |
2,409 |
547 |
||||
| Adjusted net income (Non-GAAP) |
$ 40,775 |
$ 36,981 |
$ 30,176 |
||||
| Preferred stock dividends |
(669) |
(669) |
(669) |
||||
| Adjusted net income attributable to common stockholders (Non-GAAP) |
$ 40,106 |
$ 36,312 |
$ 29,507 |
||||
| Weighted-average diluted shares outstanding |
$ 216,978 |
216,950 |
216,666 |
||||
| Earnings Per Share – diluted (GAAP) |
$ 0.19 |
$ 0.20 |
$ 0.14 |
||||
| Adjusted Earnings Per Share – diluted (Non-GAAP) |
$ 0.18 |
$ 0.17 |
$ 0.14 |
||||
| (1) See Basis of Presentation for the individual tax impact related to each reconciling item. |
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 identifies as Special Items because they 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, and should be read in conjunction with the discussion below in Basis of Presentation – Use of Non-GAAP Financial Measures and the accompanying tables (Exhibit A), which are an integral part of this press release.
INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)
Income before income taxes amounted to $59.3 million for the second quarter of 2019, compared to $60.9 million for the first quarter of 2019. Adjusted pre-tax, pre-provision income amounted to $71.0 million for the second quarter of 2019, up $0.6 million from the first quarter of 2019. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters:
| (Dollars in thousands) | Quarter Ended | ||||||||||||||
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|||||||
|
2019 |
|
2019 |
|
2018 |
|
2018 |
|
2018 |
|||||||
| Income before income taxes |
$ |
59,298 |
$ |
60,932 |
$ |
59,886 |
$ |
48,655 |
$ |
41,191 |
|||||
| Add: Provision for loan and lease losses |
|
12,534 |
|
11,820 |
|
7,649 |
|
11,524 |
|
19,536 |
|||||
| (Less)/Add: Net (gain) loss on investments and impairments |
|
– |
|
– |
|
84 |
|
– |
|
– |
|||||
| Less: Employee retention benefit – Disasater Tax Relief | |||||||||||||||
| and Airport Extension Act of 2017 |
|
– |
|
(2,317) |
|
– |
|
– |
|
– |
|||||
| Less: Benefit from hurricane-related insurance recoveries |
|
(820) |
|
– |
|
– |
|
(478) |
|
– |
|||||
| Add: Hurricane-related expenses |
|
– |
|
– |
|
– |
|
533 |
|
654 |
|||||
| Adjusted pre-tax, pre-provision income (1) |
$ |
71,012 |
$ |
70,435 |
$ |
67,619 |
$ |
60,234 |
$ |
61,381 |
|||||
| Change from most recent prior quarter (amount) |
$ |
577 |
$ |
2,816 |
$ |
7,385 |
$ |
(1,147) |
$ |
651 |
|||||
| Change from most recent prior quarter (percentage) |
|
0.8% |
|
4.2% |
|
12.3% |
|
-1.9% |
|
1.1% |
|||||
| (1) See Basis of Presentation for additional information. | |||||||||||||||
Adjusted pre-tax, pre-provision income is a non-GAAP financial measure that management believes is useful to investors in analyzing the Corporation’s performance and trends. This metric is income before income taxes adjusted to exclude the provision for loan and lease losses and any gains or losses on sales of investment securities and impairments. In addition, from time to time, earnings are also adjusted for certain items regarded as Special Items, such as the one-time employee retention benefit, and hurricane-related expenses and insurance recoveries reflected above, because management believes these items 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. (See Basis of Presentation – Use of Non-GAAP Financial Measures – Adjusted Pre-Tax, Pre-Provision Income for additional information about this non-GAAP financial measure).
NET INTEREST INCOME
Net interest income, excluding fair value adjustments on derivatives (“valuations”), and net interest income on a tax-equivalent basis are non-GAAP financial measures. See Basis of Presentation – Use of Non-GAAP Financial Measures – Net Interest Income, Excluding Valuations, and on a Tax-Equivalent Basis below for additional information. 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 last five quarters. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations, and on a tax-equivalent basis.
|
(Dollars in thousands) |
|||||||||||||||
| Quarter Ended | |||||||||||||||
| June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | |||||||||||
| Net Interest Income | |||||||||||||||
| Interest income – GAAP |
$ |
169,510 |
$ |
166,472 |
$ |
162,424 |
$ |
157,492 |
$ |
155,633 |
|||||
| Unrealized loss (gain) on | |||||||||||||||
| derivative instruments |
|
1 |
|
4 |
|
(22) |
|
– |
|
– |
|||||
| Interest income excluding valuations |
|
169,511 |
|
166,476 |
|
162,402 |
|
157,492 |
|
155,633 |
|||||
| Tax-equivalent adjustment |
|
4,929 |
|
5,322 |
|
6,135 |
|
5,413 |
|
5,163 |
|||||
| Interest income on a tax-equivalent basis and excluding valuations |
$ |
174,440 |
$ |
171,798 |
$ |
168,537 |
$ |
162,905 |
$ |
160,796 |
|||||
| Interest expense – GAAP |
|
26,964 |
|
26,291 |
|
24,726 |
|
24,971 |
|
25,162 |
|||||
| Net interest income – GAAP |
$ |
142,546 |
$ |
140,181 |
$ |
137,698 |
$ |
132,521 |
$ |
130,471 |
|||||
| Net interest income excluding valuations |
$ |
142,547 |
$ |
140,185 |
$ |
137,676 |
$ |
132,521 |
$ |
130,471 |
|||||
| Net interest income on a tax-equivalent basis and excluding valuations |
$ |
147,476 |
$ |
145,507 |
$ |
143,811 |
$ |
137,934 |
$ |
135,634 |
|||||
| Average Balances | |||||||||||||||
| Loans and leases |
$ |
9,035,618 |
$ |
8,912,874 |
$ |
8,761,306 |
$ |
8,676,620 |
$ |
8,693,347 |
|||||
| Total securities, other short-term investments and interest-bearing cash balances |
|
2,641,185 |
|
2,634,055 |
|
2,685,654 |
|
2,892,148 |
|
2,959,281 |
|||||
| Average interest-earning assets |
$ |
11,676,803 |
$ |
11,546,929 |
$ |
11,446,960 |
$ |
11,568,768 |
$ |
11,652,628 |
|||||
| Average interest-bearing liabilities |
$ |
7,714,393 |
$ |
7,615,212 |
$ |
7,654,622 |
$ |
7,830,063 |
$ |
8,054,865 |
|||||
| Average Yield/Rate | |||||||||||||||
| Average yield on interest-earning assets – GAAP |
|
5.82% |
|
5.85% |
|
5.63% |
|
5.40% |
|
5.36% |
|||||
| Average rate on interest-bearing liabilities – GAAP |
|
1.40% |
|
1.40% |
|
1.28% |
|
1.27% |
|
1.25% |
|||||
| Net interest spread – GAAP |
|
4.42% |
|
4.45% |
|
4.35% |
|
4.13% |
|
4.11% |
|||||
| Net interest margin – GAAP |
|
4.90% |
|
4.92% |
|
4.77% |
|
4.54% |
|
4.49% |
|||||
| Average yield on interest-earning assets excluding valuations |
|
5.82% |
|
5.85% |
|
5.63% |
|
5.40% |
|
5.36% |
|||||
| Average rate on interest-bearing liabilities excluding valuations |
|
1.40% |
|
1.40% |
|
1.28% |
|
1.27% |
|
1.25% |
|||||
| Net interest spread excluding valuations |
|
4.42% |
|
4.45% |
|
4.35% |
|
4.13% |
|
4.11% |
|||||
| Net interest margin excluding valuations |
|
4.90% |
|
4.92% |
|
4.77% |
|
4.54% |
|
4.49% |
|||||
| Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations |
|
5.99% |
|
6.03% |
|
5.84% |
|
5.59% |
|
5.53% |
|||||
| Average rate on interest-bearing liabilities excluding valuations |
|
1.40% |
|
1.40% |
|
1.28% |
|
1.27% |
|
1.25% |
|||||
| Net interest spread on a tax-equivalent basis and excluding valuations |
|
4.59% |
|
4.63% |
|
4.56% |
|
4.32% |
|
4.28% |
|||||
| Net interest margin on a tax-equivalent basis and excluding valuations |
|
5.07% |
|
5.11% |
|
4.99% |
|
4.73% |
|
4.67% |
|||||
Net interest income amounted to $142.5 million for the second quarter of 2019, an increase of $2.3 million when compared to net interest income of $140.2 million for the first quarter of 2019. The increase in net interest income was mainly due to:
-
A $2.7 million increase in interest income on consumer loans, primarily due to an increase of $78.6 million in the average balance of this portfolio and the effect of one additional day in the second quarter that resulted in an increase of approximately $0.3 million in interest income on consumer loans. The aggregate average balance of auto loans and finance leases grew by $58.7 million and the average balance of personal loans increased by $18.8 million.
-
A $1.5 million increase in interest income on commercial and construction loans, primarily due to the growth in the balance of the performing commercial loan portfolio. The aggregate average balance of the commercial and construction loan portfolios increased by $91.4 million, net of the effect of reductions in non-performing commercial and construction loans. In addition, there was a $0.6 million increase in interest income on commercial and construction loans related to the effect of one additional day in the second quarter. These increases offset the adverse effect of approximately $0.4 million related to the downward repricing of variable rate commercial loans.
- A $0.6 million increase in interest income from interest-bearing cash balances, reflecting an increase of $100.5 million in the average balance, which consisted primarily of deposits maintained at the Federal Reserve Bank of New York.
Partially offset by:
-
A $1.3 million decrease in interest income on investment securities, due to both a $0.7 million increase in the U.S. agency mortgage-backed securities (“MBS”) premium amortization expense resulting from higher prepayment rates, and the effect of a $93.1 million decrease in the average balance of U.S. agency bonds and MBS.
- A $0.7 million increase in interest expense, reflecting an increase of approximately $1.6 million in interest expense on interest-bearing deposits, primarily due to the effect of higher market interest rates in the average cost of retail and brokered CDs. This increase was partially offset by a $0.9 million decrease in interest expense on repurchase agreements, primarily due to the downward repricing of variable-rate repurchase agreements and the full-quarter effect of a $50.1 million short-term repurchase agreement repaid in the latter part of the first quarter.
- A $0.5 million decrease in interest income on residential mortgage loans, primarily due to a decrease of $47.3 million in the average balance of this portfolio.
Net interest margin was 4.90%, relatively flat compared to 4.92% for the first quarter of 2019. The slight decrease was primarily related to the aforementioned increase in the premium amortization expense of U.S. agency MBS.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses for the second quarter of 2019 was $12.5 million, compared to $11.8 million for the first quarter of 2019. As mentioned above, a loan loss reserve release of approximately $6.4 million was recorded in the first quarter of 2019 in connection with revised estimates of the hurricane-related qualitative reserves for consumer and commercial and construction loans associated with the effects of Hurricanes Irma and Maria. The significant overall uncertainties that complicated management’s early assessments of hurricane-related credit losses have been largely addressed in the 18-month period since the hurricanes, and the hurricanes’ effect on credit quality is now reflected in the normal process for determining the allowance for loan losses and not through a separate hurricane-related qualitative reserve.
The $0.7 million increase in the provision for loan and lease losses, as compared to the 2019 first quarter provision, was driven by the following factors:
- A $3.4 million provision for commercial and construction loans in the second quarter of 2019, compared to a $5.0 million net loan loss reserve release in the first quarter of 2019. The variance of $8.4 million primarily reflects: (i) an adverse effect of approximately $3.4 million related to higher historical loss rates applied during the second quarter to the substandard commercial mortgage loan portfolio; and (ii) the effect in the first quarter of 2019 of a $3.4 million release associated with revised estimates of the hurricane-related qualitative reserve for commercial loans. These variances were partially offset by the effect in the first quarter of 2019 of a $2.1 million provision for a charge-off taken on the restructuring of a commercial mortgage loan in Puerto Rico and lower charges to specific reserves on impaired loans during the second quarter of 2019.
Partially offset by:
- A $6.1 million decrease in the provision for residential mortgage loans, mainly related to improvements in delinquency migration statistics and the adverse effect in the first quarter of updated appraisals of certain loans in process of foreclosure.
- A $1.6 million decrease in the provision for consumer loans, driven by a $2.6 million decrease in net charge-offs and lower historical loss rates reflected primarily in auto, finance leases, and credit card loan portfolios. These variances were partially offset by the effect in the first quarter of 2019 of a $3.0 million release associated with revised estimates of the hurricane-related qualitative reserve for consumer loans.
See Credit Quality – Allowance for Loan and Lease Losses below for additional information regarding the allowance for loan and lease losses, including variances in net charge-offs.
NON-INTEREST INCOME
The following table sets forth information concerning non-interest income during the periods indicated:
|
|
Quarter Ended | ||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||
| (In thousands) |
2019 |
|
2019 |
|
2018 |
|
2018 |
|
2018 |
||||||
| Service charges on deposit accounts |
$ |
5,887 |
$ |
5,716 |
$ |
5,666 |
$ |
5,581 |
$ |
5,344 |
|||||
| Mortgage banking activities |
|
4,395 |
|
3,627 |
|
3,677 |
|
4,551 |
|
4,835 |
|||||
| Net gain (loss) on investments and impairments |
|
– |
|
– |
|
(84) |
|
– |
|
– |
|||||
| Other operating income |
|
11,941 |
|
13,200 |
|
11,272 |
|
8,391 |
|
10,293 |
|||||
| Non-interest income |
$ |
22,223 |
$ |
22,543 |
$ |
20,531 |
$ |
18,523 |
$ |
20,472 |
|||||
Non-interest income amounted to $22.2 million for the second quarter of 2019, compared to $22.5 million for the first quarter of 2019. The $0.3 million decrease in non-interest income was primarily due to:
- A $2.2 million decrease in insurance income, primarily reflecting the effect in the first quarter of 2019 of seasonal contingent insurance commissions of $2.7 million, included as part of “Other operating income” in the table above.
- The effect in the first quarter of 2019 of a $0.2 million gain recorded on the sale of $4.8 million in nonaccrual commercial loans held for sale, included as part of “Other operating income” in the table above.
Partially offset by:
-
A $0.8 million increase in revenues from mortgage banking activities, driven by a $1.1 million increase in gains from sales of residential mortgage loans. Total loans sold in the secondary market to U.S. government-sponsored agencies amounted to $97.6 million with a related net gain of $3.3 million, net of realized losses of $0.5 million on To-Be-Announced (“TBA”) hedges settled during the second quarter of 2019, compared to total loans sold in the secondary market of $77.3 million with a related net gain of $2.2 million, net of realized losses of $0.6 million on TBA hedges, for the first quarter of 2019.
- A $0.4 million increase in credit and debit cards interchange fee income due to higher transaction volumes, included as part of “Other operating income” in the table above.
Contacts
First BanCorp.
John B. Pelling III
Investor Relations Officer
[email protected]
(787) 729-8003
