First BanCorp. — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022. First BanCorp. is a Puerto Rico-headquartered financial holding company operating through FirstBank in Puerto Rico, the U.S. and British Virgin Islands, and Florida. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net interest income | $185.6 | $176.3 |
| Net interest margin, GAAP | 3.81% | 3.91% |
| Non-interest income | $32.9 | $31.0 |
| Non-interest expenses | $106.7 | $133.3 |
| Income before taxes | $125.6 | $89.2 |
| Net income | $82.6 | $61.2 |
| Diluted EPS | $0.41 | $0.28 |
| Return on average assets / equity | 1.65% / 16.64% | 1.30% / 10.82% |
| Efficiency ratio | 48.82% | 64.33% |
Net interest income plus non-interest income was $218.5 million. Net income increased 35% year over year, while the GAAP net interest margin fell 10 basis points. Management attributed higher net interest income mainly to lower deposit costs and reduced premium amortization on agency mortgage-backed securities (MBS). The lower reported expenses largely reflect the absence of prior-year merger and restructuring costs.
Balance sheet, cash flow, capital and liquidity
- Assets and equity: Total assets were $19.93 billion at March 31, down $856 million from year-end 2021. Stockholders’ equity was $1.78 billion, down $321 million.
- Loans and deposits: Gross loans held for investment were $11.10 billion, up $37 million from year-end; total deposits were $17.34 billion, down $450 million. Management cited lower public-sector deposits, partly offset by growth in customer demand deposits.
- Cash flow: Operating activities provided $114.8 million; investing activities used $333.0 million; financing activities used $628.7 million. Cash and cash equivalents declined $846.8 million to $1.70 billion.
- Borrowings: At quarter-end, repurchase agreements totaled $200 million, FHLB advances $200 million, and other borrowings $183.8 million. The company repaid $100 million of repurchase agreements during the quarter. The FHLB borrowing capacity available was $1.2 billion.
- Liquidity: Management reported a core liquidity reserve of $5.3 billion, or 26.5% of assets, and a basic liquidity ratio of 32.6%. Bank deposits funded 87.2% of Bank assets. Public-sector deposits in Puerto Rico were $2.3 billion, down from $2.7 billion at year-end.
- Capital: First BanCorp.’s CET1, Tier 1, total capital and leverage ratios were 17.71%, 17.71%, 20.44% and 10.35%, respectively. FirstBank exceeded minimum well-capitalized thresholds. Tangible common equity ratio was 8.63%, down from 9.81% at year-end.
Asset quality and material changes
- The loan and finance lease allowance for credit losses (ACL) was $245.4 million, or 2.21% of loans, down from $269.0 million and 2.43% at year-end. The quarter included a $17.0 million net benefit for loan and lease provisions; total provision across loans, commitments and securities was a $13.8 million net benefit.
- Net charge-offs were $6.6 million, or 0.24% of average loans annualized, versus $12.5 million, or 0.43%, a year earlier. Nonperforming assets were $156.5 million, down from $158.1 million at year-end; nonaccrual loans were $107.0 million.
- Loans 90 days or more past due and still accruing were $118.8 million. Early delinquencies (30–89 days) rose to $100.4 million from $90.3 million, largely due to commercial loans maturing while renewals were in process.
- Q1 loan production was $1.19 billion versus $1.34 billion. Excluding $209.3 million of PPP originations in Q1 2021, production increased year over year; residential mortgage originations declined, which management linked mainly to higher market rates and lower refinancing activity.
- Available-for-sale securities had $417.8 million of gross unrealized losses at quarter-end, versus $108.5 million at year-end. The $331.8 million after-tax quarterly loss in other comprehensive income drove much of the decline in equity. Management said the decline in U.S. government and agency securities reflected interest rates rather than credit deterioration and reported no intent to sell or expected need to sell before recovery.
Outlook, management commentary and risks
The filing provides no specific earnings or revenue guidance. Management described the Bank as asset-sensitive: its 12-month growing-balance-sheet simulation estimated net interest income would rise $27.8 million under a gradual +200-basis-point scenario and fall $18.6 million under its modeled declining-rate scenario. These are model estimates, not forecasts, and depend on assumptions about rates, prepayments, deposit behavior and balance-sheet growth.
- For ACL estimation, the company began probability-weighting baseline and downside economic scenarios, with the baseline receiving the greatest weight. Management cited uncertainty from the Ukraine conflict, supply-chain disruption and inflation. A more adverse modeled scenario implied an approximately $34 million increase in modeled ACL before qualitative adjustments.
- Puerto Rico concentration remains material: approximately 79% of gross loans were in Puerto Rico. Direct exposure to the Puerto Rico government, municipalities and public corporations was $356.8 million; municipal held-to-maturity bonds carried a $12.3 million ACL. The company also had $90.6 million of exposure to mortgages guaranteed by PRHFA. It cautioned that further fiscal or economic deterioration could result in additional credit losses.
- Management identified rising rates and inflation, COVID-19 uncertainty, Puerto Rico’s fiscal and economic conditions, credit quality, funding access, securities valuation, regulatory matters, cybersecurity, and LIBOR transition among relevant risks. The company reported $2.1 billion of LIBOR-linked commercial and construction loans and commitments, $183.8 million of LIBOR-linked subordinated debentures, and other LIBOR exposures; it had stopped originating LIBOR-indexed products by year-end 2021.
- The Puerto Rico Commonwealth Plan of Adjustment became effective March 15, 2022. The filing notes that PREPA and highway authority debt restructurings remained pending. FirstBank’s $38.0 million of USVI public-corporation loans were reported current and performing.
- The quarter had no significant special items identified by management. By contrast, Q1 2021 included $11.3 million of merger and restructuring costs and $1.2 million of COVID-related expenses. BSPR integration continued, with three additional branches consolidated in Q1 and 12 consolidated to date.
- After quarter-end, the Board authorized a new repurchase program of up to $350 million over four quarters beginning Q2 2022, and declared a $0.12 quarterly dividend per share, a 20% increase. Both remain subject to Board discretion and relevant capital, liquidity and market conditions.
Important facts for investors to verify
- Whether deposit trends—particularly public-sector deposit levels—and cash use affect liquidity, funding costs or loan growth.
- Whether the marked increase in securities unrealized losses remains primarily rate-driven and how it affects tangible equity, capital and potential securities sales.
- Whether credit performance, early delinquencies, Puerto Rico municipal exposure and ACL assumptions change as economic conditions evolve.
- Whether rising rates improve asset yields as modeled or instead pressure deposit costs, mortgage volumes, prepayments and margins.
- How the $350 million repurchase authorization and higher dividend affect capital, liquidity and shareholder returns; neither action guarantees a specific repurchase amount or future dividend.
- Progress on LIBOR contract remediation and the financial effects of Puerto Rico and USVI government debt developments.