First BanCorp. — Q1 2023 Form 10-Q
Reporting period: Quarter ended March 31, 2023; unaudited consolidated results. First BanCorp. is a Puerto Rico-based financial holding company operating principally in Puerto Rico, Florida, and the U.S. and British Virgin Islands.
Financial results and position
| Metric | Q1 2023 / Mar. 31, 2023 | Comparable period / Dec. 31, 2022 |
|---|---|---|
| Net interest income | $200.9 million | $185.6 million in Q1 2022 |
| Net income | $70.7 million; diluted EPS $0.39 | $82.6 million; diluted EPS $0.41 in Q1 2022 |
| Net interest margin | 4.34% GAAP; 4.48% tax-equivalent, excluding derivative valuation changes | 3.81% GAAP; 3.96% tax-equivalent in Q1 2022 |
| Non-interest income / expenses | $32.5 million / $115.3 million | $32.9 million / $106.7 million in Q1 2022 |
| Efficiency ratio | 49.39% | 48.82% in Q1 2022 |
| Assets / equity | $19.0 billion / $1.41 billion | $18.63 billion / $1.33 billion at Dec. 31, 2022 |
| Loans held for investment, gross | $11.58 billion; ACL $265.6 million | $11.55 billion; ACL $260.5 million at Dec. 31, 2022 |
| Deposits | $16.05 billion | $16.14 billion at Dec. 31, 2022 |
| Cash and cash equivalents | $823.6 million | $480.5 million at Dec. 31, 2022 |
| Borrowings | $1.28 billion: $925.0 million FHLB advances, $173.0 million repos, and $183.8 million other long-term borrowings | $934.0 million at Dec. 31, 2022 |
| Regulatory capital | Corporation CET1 16.33%; total capital 19.02%; leverage 10.57% | CET1 16.53%; total capital 19.21%; leverage 10.70% at Dec. 31, 2022 |
Net cash provided by operating activities was $115.4 million, investing activities provided $50.5 million, and financing activities provided $177.1 million. Cash rose by $343.1 million during the quarter, largely as the company added borrowings as a precaution amid banking-sector disruption.
Material changes versus prior periods
- Net income declined about 14% year over year, despite higher net interest income. Higher rates and loan growth lifted interest income, while deposit and borrowing costs rose sharply.
- Net interest income increased $15.3 million year over year. Average cost of interest-bearing liabilities rose 110 basis points; GAAP net interest margin improved 53 basis points.
- Credit-loss provision shifted to a $15.5 million expense from a $13.8 million benefit in Q1 2022. Net charge-offs increased to $13.3 million, or 0.46% of average loans annualized, from $6.6 million, or 0.24%.
- Non-interest expenses increased $8.6 million, led by employee compensation and benefits. Mortgage banking income fell as loan-sale volumes and gains declined; card and processing income increased.
- Gross loans grew modestly, with consumer loans up $79.5 million and commercial and construction loans down $18.6 million from year-end. Core deposits declined $142.7 million to $13.1 billion.
- Available-for-sale securities had a $711.0 million net unrealized loss at March 31. A $87.2 million quarterly improvement in fair value reduced accumulated other comprehensive loss; management attributed the unrealized loss primarily to market interest rates.
Liquidity, outlook, risks, and unusual items
- Liquidity: Management reported approximately $5.5 billion of available liquidity, equal to 114% of estimated uninsured deposits excluding fully collateralized deposits. This included $3.2 billion of cash and free high-quality liquid assets, about $882.5 million of additional FHLB capacity, and about $1.4 billion available through the Fed Discount Window. The company also enrolled in the Fed’s Bank Term Funding Program.
- Funding and deposits: Deposits funded 84.9% of the Bank’s assets (83.5% excluding brokered CDs). Core deposits were $13.1 billion; brokered CDs were $252.9 million. Management noted that deposit competition and customers moving cash to higher-yielding products could increase funding costs.
- Credit quality: Non-performing assets were $129.0 million, or 0.68% of assets, broadly stable from year-end. Nonaccrual commercial and industrial loans increased, including a $7.1 million Florida power-generation loan. The allowance for loan losses was 2.29% of gross loans. Management’s more adverse macroeconomic scenario indicated a hypothetical $34 million increase in modeled ACL, before qualitative adjustments.
- Concentrations and securities: About 80% of gross loans were concentrated in Puerto Rico. Direct exposure to the Puerto Rico government, municipalities, and public corporations was approximately $340.0 million. The $431.4 million held-to-maturity portfolio included $165.8 million of Puerto Rico municipal bonds, with a $7.6 million allowance. Management warned that Puerto Rico fiscal and economic developments could lead to additional credit losses.
- Interest-rate outlook: The company described itself as asset-sensitive. Its 12-month simulation estimated net interest income would rise $9.7 million under a gradual +200-basis-point scenario and fall $12.7 million under a gradual -200-basis-point scenario, using a growing-balance-sheet model. These are model estimates, not guidance.
- Management outlook and capital returns: The filing provides no specific earnings or revenue guidance. Management described liquidity and capital as sound, but emphasized uncertainty from higher rates, inflation, deposit competition, and banking-sector volatility. The company paused share repurchases in Q2 2023 and expected to resume in Q3, subject to conditions; it declared a $0.14-per-share dividend payable in June.
- Puerto Rico outlook: The 2023 Fiscal Plan, certified April 3, projected a 0.7% decline in real GNP for fiscal 2023 and near-zero growth in fiscal 2024–2026, while identifying federal disaster and recovery funds as potential support. PREPA’s debt restructuring remained pending.
- Unusual item: A third-party vendor reported an April 2023 security incident involving data that included some FirstBank mortgage-loan information. First BanCorp. said its systems were not compromised and the operational and financial impact was minimal to date; its assessment and any required disclosures were ongoing.
- Other risks: The filing highlights possible deposit runoff, reliance on wholesale funding, interest-rate and securities valuation risk, Puerto Rico and U.S. Virgin Islands economic/fiscal exposure, cyber and third-party risks, regulatory changes, and the transition from LIBOR to SOFR. Management reported that the company and FirstBank exceeded minimum capital requirements and FirstBank remained well-capitalized.
Most important facts for investors to verify
- Deposit trends, uninsured-deposit composition, deposit pricing, and the sustainability and cost of wholesale funding.
- Loan delinquency, consumer charge-offs, the Florida power-generation exposure, and adequacy of the ACL under changing economic forecasts.
- Realized losses, liquidity needs, and the pace of recovery in the securities portfolio, including the large unrealized loss.
- Progress on LIBOR-to-SOFR conversion, Puerto Rico fiscal developments, and the vendor security-incident assessment.
- Whether planned Q3 share repurchases and future dividends remain consistent with capital, liquidity, and regulatory requirements.