First BanCorp. Announces Earnings for the Quarter Ended March 31, 2021
- Net income of $61.2 million, or $0.28 per diluted share, for the first quarter of 2021, compared to $50.1 million, or $0.23 per diluted share, for the fourth quarter of 2020. The net income for the first quarter of 2021 and fourth quarter of 2020 included the following items of note:
– Provision for credit losses was a net benefit of $15.3 million ($9.5 million after-tax, or an increase of $0.04 per diluted share) for the first quarter of 2021, compared to an expense of $7.7 million ($4.8 million after-tax, or a decrease of $0.02 per diluted share) for the fourth quarter of 2020. The reserve release in the first quarter of 2021 was primarily due to positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated.
– Merger and restructuring costs of $11.3 million ($7.0 million after-tax, or a decrease of $0.03 per diluted share) for the first quarter of 2021 associated with the acquisition of Banco Santander Puerto Rico (“BSPR”), compared to $12.3 million ($7.7 million after-tax, or a decrease of $0.04 per diluted share) for the fourth quarter of 2020.
- Income before income taxes of $89.2 million for the first quarter of 2021, compared to $65.5 million for the fourth quarter of 2020.
- On a non-GAAP basis, adjusted pre-tax, pre-provision income of $86.4 million for the first quarter of 2021, compared to $86.8 million for the fourth quarter of 2020.
- Net interest income decreased by $1.5 million to $176.3 million for the first quarter of 2021, compared to $177.8 million for the fourth quarter of 2020. The decrease reflects, among other things, the adverse effect of two fewer days in the first quarter, partially offset by a lower cost of deposits.
- Net interest margin was 3.91% for the first quarter of 2021, compared to 3.95% for the fourth quarter of 2020. The decrease reflects, among other things, an increased premium amortization expense related to the higher prepayment of U.S. agencies mortgage-backed securities (“MBS”) and lower reinvestment yields, lower discount accretion on loans acquired in the BSPR acquisition, and the prepayment of higher yielding loans.
- Non-interest income increased by $0.8 million to $31.0 million for the first quarter of 2021, compared to $30.2 million for the fourth quarter of 2020. The increase was driven by seasonal contingent insurance commissions of $3.3 million recognized in the first quarter of 2021, partially offset by the effect in the fourth quarter of 2020 of $1.4 million in fee income recorded in connection with the sale of loans originated under the Main Street Lending Program (“Main Street loans”) established by the Federal Reserve (the “FED”) under the Coronavirus Aid, Relief, and Economic Security (the “CARES”) Act of 2020.
- Non-interest expenses decreased by $1.5 million to $133.3 million for the first quarter of 2021, compared to $134.8 million for the fourth quarter of 2020. Total non-interest expenses for the first quarter of 2021 included $11.3 million of merger and restructuring costs, compared to $12.3 million in the fourth quarter of 2020, as well as $1.2 million of COVID-19 pandemic-related expenses, compared to $1.1 million in the fourth quarter of 2020. Adjusted for those costs, total non-interest expenses decreased by $0.5 million compared to the fourth quarter of 2020.
- Income tax expense of $28.0 million for the first quarter of 2021, compared to $15.4 million for the fourth quarter of 2020. The variance was primarily related to higher pre-tax income, driven by the provision for credit losses benefit recorded in the first quarter, as well as a higher estimated effective tax rate resulting from higher taxable income.
- Credit quality variances:
– Non-performing assets (“NPAs”) decreased by $8.6 million to $284.9 million as of March 31, 2021, compared to $293.5 million as of December 31, 2020. The decrease was driven by a $9.4 million reduction in nonaccrual commercial and construction loans, including through the repayment of a $6.0 million nonaccrual construction loan relationship in the Virgin Islands, and a $3.9 million decrease in the other real estate owned (“OREO”) portfolio balance, driven by write-downs to the value of certain income-producing commercial properties and sales of residential properties.
– An annualized net charge-offs to average loans ratio of 0.43% for the first quarter of 2021, compared to 0.30% for the fourth quarter of 2020. The increase primarily reflects the effect in the fourth quarter of 2020 of recoveries totaling $3.9 million in connection with the repayment and cancellation of two nonaccrual commercial loans.
– During the first quarter of 2021, three criticized commercial loan participations totaling $28.2 million were transferred to held for sale. These transfers resulted in charge-offs of $0.7 million in the first quarter of 2021. One of these participations amounting to $14.3 million, was sold prior to the end of the first quarter and a second one amounting to $9.7 million was sold in early April 2021.
- Total deposits, excluding brokered deposits and government deposits, increased by $472.3 million to $13.3 billion as of March 31, 2021. During the first quarter of 2021, deposit increases included $505.8 million in demand deposits and $107.7 million in savings deposits, primarily in the Puerto Rico and Virgin Islands regions, partially offset by a $141.2 million decrease in retail certificates of deposit (“CDs”).
- Brokered CDs decreased by $54.1 million during the first quarter to $162.1 million as of March 31, 2021. Meanwhile, non-maturity brokered deposits increased in the quarter by $22.8 million to $248.3 million as of March 31, 2021.
- Government deposits increased in the quarter by $252.0 million and totaled $2.3 billion as of March 31, 2021, consisting of increases of $251.8 million and $0.6 million in the Puerto Rico and Florida regions, respectively, partially offset by a $0.4 million decrease in the Virgin Islands region.
- Total loans decreased in the quarter by $129.7 million to $11.7 billion as of March 31, 2021. The decrease consisted of a $134.5 million reduction in residential mortgage loans and a $41.7 million decrease in commercial and construction loans, partially offset by a $46.5 million increase in consumer loans. The decrease in commercial and construction loans reflects, among other things, the effect of the sale of a $14.3 million criticized commercial loan participation in the Florida region, the aforementioned repayment of a $6.0 million nonaccrual construction relationship, as well as large repayments for certain term loans and revolving lines of credit in the Puerto Rico region, partially offset by new loan originations, primarily in the Florida region. The Small Business Administration Paycheck Protection Program (“SBA PPP”) loan portfolio increased by $24.5 million to $430.5 million as of March 31, 2021, from $406.0 million as of December 31, 2020.
- Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $1.2 billion in the first quarter of 2021, compared to $1.5 billion in the fourth quarter of 2020. During the first quarter of 2021, the Corporation originated $209.3 million in new SBA PPP loans and received forgiveness remittances related to approximately $175.7 million in principal balance of SBA PPP loans originated in 2020. Excluding SBA PPP loan originations and $184.4 million of Main Street loans originated in the fourth quarter of 2020, total loan originations decreased by $280.0 million to $1.0 billion during the first quarter of 2021, compared to $1.3 billion in the fourth quarter of 2020, primarily reflecting a reduced volume of commercial and construction loan originations in the Puerto Rico region.
- Liquidity levels have remained high with the ratio of cash and liquid securities to total assets exceeding 23.9% as of March 31, 2021, compared to 21.6% as of December 31, 2020.
- Capital ratios remained higher than required regulatory levels for bank holding companies and well-capitalized banks. Preliminary estimated Total capital, Common equity Tier 1 capital (“CET1”), Tier 1 capital, and Leverage ratios of 20.73%, 17.68%, 17.99%, and 11.36%, respectively, as of March 31, 2021. The tangible common equity ratio was 10.90% as of March 31, 2021.
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 $61.2 million, or $0.28 per diluted share, for the first quarter of 2021, compared to $50.1 million, or $0.23 per diluted share, for the fourth quarter of 2020, and $2.3 million, or $0.01 per diluted share, for the first quarter of 2020. Financial results for the first quarter of 2021 include a net benefit of $15.3 million ($9.5 million after-tax, or an increase of $0.04 per diluted share) recorded to the provision for credit losses, primarily related to an improving macroeconomic outlook during the quarter. In addition, during the first quarter of 2021, the Corporation recorded merger and restructuring costs of $11.3 million ($7.0 million after-tax, or a decrease of $0.03 per diluted share) related to the BSPR integration process and related restructuring initiatives, compared to $12.3 million ($7.7 million after-tax, or a decrease of $0.04 per diluted share) for the fourth quarter of 2020.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are very pleased with our results for the first quarter of 2021 and our continued progress on the integration of the acquired operations. We generated net income of $61 million, or $0.28 per share, compared to $50 million in the fourth quarter. Improving macroeconomic forecasts led to a reserve release of $15 million this quarter. Core operating performance was strong with pre-tax pre-provision income of $86 million.
Loan origination activity was solid reaching $1.2 billion in the first quarter, we strongly supported our clients and communities with $209 million of new SBA PPP loans disbursed during the quarter. The total loan portfolio declined slightly by 1%, or $130 million, in the first quarter, a portion of this reduction is tied to strategies to reduce the residential mortgage loan portfolio, which declined $135 million, as well as repayments on commercial lines due to the improved liquidity of our borrowers. The consumer portfolio increased $47 million, largely driven by continued growth in the auto and lease finance segment. We expect to see a pick-up in commercial and construction activity over the next few quarters as projects underway are gaining traction. Our teams are focused on driving growth in the loan portfolio and the commercial pipeline continues to build. The geographic diversity of our franchise, specifically the Florida region, continues to provide additional opportunities for loan growth.
Total pandemic relief funding designated for Puerto Rico is currently estimated at $45 billion, equivalent to 63% of fiscal year 2019 GNP or 4.5x the Commonwealth’s budget for fiscal year 2021. This significant amount of stimulus continues to strengthen our customers, driving growth in deposits and also softening in loan demand in the near term. Deposits, excluding government and brokered, increased $472 million this quarter which continues to enhance our liquidity profile. Digital adoption driven by our continuous enhancement to our platforms continues to grow contributing to franchise value. Digital Banking registered and active users grew 6% and 9%, respectively, for the quarter.
The economy in our main market continues to show signs of recovery, with tourism, hotel occupancy, airline passengers, manufacturing and cement sales all showing improving trends. While advancements are evident in overcoming the pandemic challenges and vaccinations continue to progress, we continue to operate under strict safety rules yet remain optimistic about recovery trends across the economy. We have solidified our market position and are poised to benefit from these improving economic conditions. Our asset quality ratios continue to improve, and our capital ratios remain very strong.”
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, adjusted non-interest expenses, 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 first quarter of 2021 and fourth and first quarters of 2020 included the following significant Special Items:
Quarter ended March 31, 2021
– Merger and restructuring costs of $11.3 million ($7.0 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the first quarter included approximately $4.8 million related to voluntary and involuntary employee separation programs implemented in the Puerto Rico region. The Corporation anticipates additional charges of approximately $1.7 million in the second quarter of 2021 in connection with the previously announced Employee Voluntary Separation Program (“VSP”) offered to eligible employees in the Puerto Rico region. Approximately 100 employees participated in the program. To allow for a transition period, the effective separation date for eligible employees is the period between the end of November 2020 until the end of July 2021. In addition, merger and restructuring costs in the first quarter of 2021 included consulting fees, 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 $1.2 million ($0.8 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security measures.
Quarter ended December 31, 2020
– Merger and restructuring costs of $12.3 million ($7.7 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the fourth quarter of 2020 included a $4.3 million charge associated with the VSP offered to eligible employees in the Puerto Rico region. In addition to the charge associated with the VSP, merger and restructuring costs in the fourth quarter of 2020 primarily included bonuses, consulting fees, and expenses related to system conversions and other integration related efforts.
– 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.
– Loss of $0.2 million realized on sales of available-for-sale investment securities. The loss realized at the tax-exempt international banking entity subsidiary level had no effect on the income tax expense recorded in the fourth quarter of 2020.
Quarter ended March 31, 2020
– Gain of $8.2 million on sales of approximately $275.6 million of U.S. agencies MBS executed in the latter part of March 2020. The gain, realized at the tax-exempt international banking entity subsidiary, had no effect on the income tax expense recorded in the first quarter of 2020.
– A benefit of $1.2 million ($0.7 million after-tax) resulting from insurance recoveries associated with hurricane-related expenses incurred primarily in the Puerto Rico region.
– Merger and restructuring costs of $0.8 million ($0.5 million after-tax) in connection with the BSPR acquisition. Merger and restructuring costs in the first quarter of 2020 primarily included consulting, legal, and other pre-conversion related efforts associated with the then-pending acquisition of BSPR.
– Costs of $0.4 million ($0.2 million after-tax) related to the COVID-19 pandemic response efforts, primarily additional cleaning costs and communications with customers.
NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)
Net income was $61.2 million for the first quarter of 2021, or $0.28 per diluted share, compared to $50.1 million for the fourth quarter of 2020, or $0.23 per diluted share. Adjusted net income was $68.9 million, or $0.31 per diluted share, for the first quarter of 2021, compared to $58.7 million, or $0.27 per diluted share, for the fourth quarter of 2020. The following table reconciles for the first quarter of 2021 and the fourth and first quarters of 2020 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 | Quarter Ended | Quarter Ended | |||||||||||
| (In thousands, except per share information) | March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||
| Net income, as reported (GAAP) |
$ |
61,150 |
|
$ |
50,138 |
|
$ |
2,266 |
|
||||
| Adjustments: | |||||||||||||
| Merger and restructuring costs |
|
11,267 |
|
|
12,321 |
|
|
845 |
|
||||
| Benefit from hurricane-related insurance recoveries |
|
– |
|
|
– |
|
|
(1,153 |
) |
||||
| Loss (gain) on sales of investment securities |
|
– |
|
|
182 |
|
|
(8,247 |
) |
||||
| COVID-19 pandemic-related expenses |
|
1,209 |
|
|
1,125 |
|
|
363 |
|
||||
| Income tax impact of adjustments (1) |
|
(4,679 |
) |
|
(5,042 |
) |
|
(21 |
) |
||||
| Adjusted net income (loss) (Non-GAAP) |
$ |
68,947 |
|
$ |
58,724 |
|
$ |
(5,947 |
) |
||||
| Preferred stock dividends |
|
(669 |
) |
|
(669 |
) |
|
(669 |
) |
||||
| Adjusted net income (loss) attributable to common stockholders (Non-GAAP) |
$ |
68,278 |
|
$ |
58,055 |
|
$ |
(6,616 |
) |
||||
| Weighted-average diluted shares outstanding |
$ |
218,277 |
|
|
218,071 |
|
$ |
217,314 |
|
||||
| Earnings Per Share – diluted (GAAP) |
$ |
0.28 |
|
$ |
0.23 |
|
$ |
0.01 |
|
||||
| Adjusted Earnings (Loss) Per Share – diluted (Non-GAAP) |
$ |
0.31 |
|
$ |
0.27 |
|
$ |
(0.03 |
) |
||||
| (1) See Basis of Presentation for the individual tax impact related to reconciling items. | |||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)
Income before income taxes was $89.2 million for the first quarter of 2021, compared to $65.5 million for the fourth quarter of 2020. Adjusted pre-tax, pre-provision income was $86.4 million for the first quarter of 2021, down $0.4 million from the fourth quarter of 2020. The following table reconciles income (loss) before income taxes to adjusted pre-tax, pre-provision income for the last five quarters:
| (Dollars in thousands) | Quarter Ended | |||||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
|
2021 |
2020 |
2020 |
2020 |
2020 |
||||||||||||||||
| Income (loss) before income taxes |
$ |
89,172 |
|
$ |
65,514 |
|
$ |
24,208 |
|
$ |
27,302 |
|
$ |
(701 |
) |
|||||
| Less/Add: Provision for credit losses (benefit) expense |
|
(15,252 |
) |
|
7,691 |
|
|
46,914 |
|
|
39,014 |
|
|
77,366 |
|
|||||
| Add/Less: Net loss (gain) on sales of investment securities |
|
– |
|
|
182 |
|
|
(5,288 |
) |
|
155 |
|
|
(8,247 |
) |
|||||
| Less: Benefit from hurricane-related insurance recoveries |
|
– |
|
|
– |
|
|
– |
|
|
(5,000 |
) |
|
(1,153 |
) |
|||||
| Less: Gain on early extinguishment of debt |
|
– |
|
|
– |
|
|
(94 |
) |
|
– |
|
|
– |
|
|||||
| Add: COVID-19 pandemic-related expenses |
|
1,209 |
|
|
1,125 |
|
|
962 |
|
|
2,961 |
|
|
363 |
|
|||||
| Add: Merger and restructuring costs |
|
11,267 |
|
|
12,321 |
|
|
10,441 |
|
|
2,902 |
|
|
845 |
|
|||||
| Adjusted pre-tax, pre-provision income (1) |
$ |
86,396 |
|
$ |
86,833 |
|
$ |
77,143 |
|
$ |
67,334 |
|
$ |
68,473 |
|
|||||
| Change from most recent prior quarter (amount) |
$ |
(437 |
) |
$ |
9,690 |
|
$ |
9,809 |
|
$ |
(1,139 |
) |
$ |
(3,670 |
) |
|||||
| Change from most recent prior quarter (percentage) |
|
-0.5 |
% |
|
12.6 |
% |
|
14.6 |
% |
|
-1.7 |
% |
|
-5.1 |
% |
|||||
| (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:
| (Dollars in thousands) | Quarter Ended | |||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||
| Net Interest Income | ||||||||||||||||||||
| Interest income |
$ |
194,642 |
|
$ |
198,700 |
|
$ |
170,402 |
|
$ |
158,616 |
|
$ |
165,264 |
|
|||||
| Interest expense |
|
18,377 |
|
|
20,933 |
|
|
21,706 |
|
|
23,406 |
|
|
26,615 |
|
|||||
| Net interest income |
$ |
176,265 |
|
$ |
177,767 |
|
$ |
148,696 |
|
$ |
135,210 |
|
$ |
138,649 |
|
|||||
| Average Balances | ||||||||||||||||||||
| Loans and leases |
$ |
11,768,266 |
|
$ |
11,843,157 |
|
$ |
10,163,671 |
|
$ |
9,247,878 |
|
$ |
8,997,418 |
|
|||||
| Total securities, other short-term investments and interest-bearing cash balances |
|
6,510,960 |
|
|
6,057,360 |
|
|
4,871,710 |
|
|
3,636,532 |
|
|
3,055,546 |
|
|||||
| Average interest-earning assets |
$ |
18,279,226 |
|
$ |
17,900,517 |
|
$ |
15,035,381 |
|
$ |
12,884,410 |
|
$ |
12,052,964 |
|
|||||
| Average interest-bearing liabilities |
$ |
11,815,179 |
|
$ |
11,704,166 |
|
$ |
9,732,691 |
|
$ |
8,436,511 |
|
$ |
8,099,199 |
|
|||||
| Average Yield/Rate | ||||||||||||||||||||
| Average yield on interest-earning assets – GAAP |
|
4.32 |
% |
|
4.42 |
% |
|
4.51 |
% |
|
4.95 |
% |
|
5.51 |
% |
|||||
| Average rate on interest-bearing liabilities – GAAP |
|
0.63 |
% |
|
0.71 |
% |
|
0.89 |
% |
|
1.12 |
% |
|
1.34 |
% |
|||||
| Net interest spread – GAAP |
|
3.69 |
% |
|
3.71 |
% |
|
3.62 |
% |
|
3.83 |
% |
|
4.17 |
% |
|||||
| Net interest margin – GAAP |
|
3.91 |
% |
|
3.95 |
% |
|
3.93 |
% |
|
4.22 |
% |
|
4.63 |
% |
|||||
Net interest income amounted to $176.3 million for the first quarter of 2021, a decrease of $1.5 million, compared to net interest income of $177.8 million for the fourth quarter of 2020. The decrease in net interest income was mainly due to:
-
A $2.4 million decrease in interest income on residential mortgage loans, primarily due to a decrease of $121.2 million in the average balance of this portfolio, and, to a lesser extent, a decrease in collection of interest on loans restored to accrual status and higher inflows of loans to nonaccrual status, as compared to the fourth quarter of 2020.
-
A $1.4 million decrease in interest income on commercial and construction loans, primarily due to: (i) the adverse effect of two fewer days in the first quarter, which resulted in a decrease of approximately $1.5 million in interest income on these portfolios, (ii) a decrease of approximately $1.0 million in interest income attributed to the decline in discount accretion related to commercial and construction loans acquired in the BSPR acquisition; and (iii) the prepayment of higher yielding loans, which are being replaced by loans at lower current interest rates. These variances were partially offset by a $2.5 million increase in the acceleration of fee income recognition related to forgiveness remittances for SBA PPP loans.
- A $0.2 million decrease in interest income on consumer loans and finance leases, primarily due to the adverse effect of two fewer days in the first quarter, which resulted in a decrease of approximately $1.2 million in interest income on consumer loans. This variance was partially offset by an increase of approximately $44.9 million in the average balance of this portfolio, which resulted in an increase in interest income of approximately $1.0 million, largely related to auto loans and finance leases.
Partially offset by:
- A $2.6 million decrease in interest expense, including a reduction of approximately $2.8 million related to lower average rates paid on interest-bearing checking, savings, and non-brokered time deposits, a $0.4 million decrease related to a $64.6 million decrease in the average balance of brokered CDs, and a $0.4 million decrease in total interest expense associated with two fewer days in the first quarter.
Contacts
First BanCorp.
John B. Pelling III
Investor Relations Officer
john.pelling@firstbankpr.com
(787) 729-8003