First BanCorp. — Q1 2024 Form 10-Q
Reporting period: Quarter ended March 31, 2024. First BanCorp. is a Puerto Rico-based financial holding company operating principally through FirstBank in Puerto Rico, Florida, the U.S. Virgin Islands and the British Virgin Islands.
Financial performance
| Metric | Q1 2024 | Q1 2023 or prior date |
|---|---|---|
| Interest and dividend income | $268.5 million | $242.4 million |
| Net interest income | $196.5 million | $200.9 million |
| Net interest margin, GAAP | 4.16% | 4.34% |
| Provision for credit losses | $12.2 million | $15.5 million |
| Non-interest income | $34.0 million | $32.5 million |
| Non-interest expense | $120.9 million | $115.3 million |
| Net income / diluted EPS | $73.5 million / $0.44 | $70.7 million / $0.39 |
| Return on average assets | 1.56% | 1.55% |
| Efficiency ratio | 52.46% | 49.39% |
Net interest income fell despite higher loan yields and balances, as deposit interest expense rose substantially with higher rates, deposit mix changes and increased brokered-CD funding. Net interest margin declined year over year. Lower provision expense and a lower effective tax rate helped lift net income and EPS; the estimated effective tax rate was 24.3%, versus 31.2% a year earlier. The filing reports total quarterly revenue of $230.5 million, compared with $233.4 million.
Balance sheet, liquidity and capital
- Total assets were $18.9 billion at March 31, 2024, approximately flat with year-end 2023. Gross loans held for investment were $12.31 billion, up from $12.19 billion; loan growth was the ninth consecutive quarter. Total deposits were $16.55 billion, slightly lower than $16.56 billion at year-end.
- Cash and cash equivalents were $684.5 million. First BanCorp. reported $2.7 billion of core liquidity and $5.4 billion of combined available liquidity, equal to 121% of estimated uninsured deposits excluding fully collateralized government deposits. Available borrowing capacity included approximately $1.6 billion at the Federal Reserve Discount Window and $972.5 million at the FHLB.
- Estimated uninsured deposits were $7.5 billion overall, including $3.0 billion of fully collateralized government deposits; excluding those government deposits, estimated uninsured deposits were $4.4 billion. Core deposits were approximately $12.6 billion and management said they stabilized during the quarter.
- Long-term borrowings totaled $661.7 million: $500 million of FHLB advances and $161.7 million of junior subordinated debentures. FHLB advances carried a 4.45% weighted-average rate; the floating-rate subordinated debt carried rates of approximately 8.09%–8.34% at quarter-end.
- Stockholders’ equity was $1.48 billion, down $17.9 million from year-end. First BanCorp.’s CET1, Tier 1, total capital and leverage ratios were 15.90%, 15.90%, 18.36% and 10.65%, respectively. FirstBank exceeded regulatory minimums and remained classified as well capitalized.
- Operating cash flow was $118.2 million, investing cash flow was $39.7 million, and financing cash flow was negative $136.6 million. Cash and cash equivalents increased $21.4 million during the quarter.
Credit quality and material changes
- The allowance for credit losses on loans and leases was $263.6 million, or 2.14% of gross loans, versus $261.8 million, or 2.15%, at year-end. Q1 provision expense included recoveries, notably $9.5 million from a bulk sale of previously charged-off consumer loans and a $5.0 million C&I recovery.
- Net charge-offs were $11.2 million, or 0.37% of average loans annualized, versus $13.3 million, or 0.46%, a year earlier. Management cautioned that the $9.5 million bulk-sale recovery reduced the Q1 2024 net charge-off ratio by approximately 31 basis points. Consumer and finance-lease net charge-offs nevertheless increased year over year.
- Non-performing assets rose to $129.6 million from $125.9 million; nonaccrual loans increased to $93.0 million from $83.7 million. The principal driver was a $10.5 million Florida C&I loan in the power-generation industry placed on nonaccrual. Early-stage delinquencies declined to $133.7 million from $150.8 million.
- Loan exposure is concentrated geographically: approximately 80% in Puerto Rico, 17% in the U.S. (principally Florida), and 3% in the Virgin Islands. Commercial mortgage exposure totaled about $2.4 billion; $533 million matures within 12 months, including $97.1 million of office-industry exposure.
- Available-for-sale securities had a net unrealized loss of approximately $647.9 million at quarter-end, largely attributed by management to interest rates. The quarter recorded a $15.1 million other comprehensive loss, compared with $87.2 million of other comprehensive income in Q1 2023. Management said it did not expect to need to sell U.S. government and agency securities before anticipated recovery.
Outlook, commentary and unusual items
- Management expects a higher-for-longer rate environment to be margin-accretive for 2024, expects approximately $900 million of securities repayments for the remainder of the year to be redeployed into higher-yielding assets, and anticipates mid-single-digit loan growth in core businesses. It expects some further time-deposit growth while other deposits remain stable.
- The company returned approximately $76.6 million to shareholders in Q1 through $50.0 million of open-market repurchases and $26.6 million of dividends. The quarterly dividend rose to $0.16 per share. Remaining repurchase authorization was $100 million at March 31; the filing later reported approximately $95.1 million remaining as of May 2, with execution expected through Q3. Management expected to update its capital plan in Q2.
- First BanCorp. announced a commercial-banking technology partnership with nCino, with an estimated investment of approximately $15 million.
- The FDIC special assessment increased the company’s estimated liability to $7.3 million after a $0.9 million additional Q1 expense. Further changes to the assessment amount or collection period remain possible. The filing’s adjusted net income, a non-GAAP measure excluding this item, was $74.1 million versus GAAP net income of $73.5 million.
- Puerto Rico economic, fiscal and political developments, including the pending PREPA debt restructuring and the not-yet-certified 2024 fiscal plan as of filing, remain relevant risks. Other cited risks include interest rates and deposit competition, credit quality and real estate conditions, securities losses, cyber and operational events, regulatory costs, and the company’s ability to maintain capital and liquidity.
- Commitments to extend credit were approximately $2.0 billion, and commercial and financial standby letters of credit were approximately $74 million. The company disclosed ordinary-course legal proceedings but stated that, based on its assessment, no additional material loss-range disclosure was necessary.
Important facts for investors to verify
- Whether deposit pricing, deposit mix and funding costs stabilize enough to support net interest margin.
- Whether loan growth continues and whether the Florida power-generation exposure or other commercial real estate and C&I credits lead to further nonaccruals or losses.
- How sustainable credit-cost trends are after separating the one-time bulk-sale and C&I recoveries from underlying charge-off performance.
- Whether the large securities unrealized loss remains manageable without asset sales, and how rate movements affect liquidity and capital.
- Future uninsured-deposit levels, accessible liquidity and collateral availability, as well as changes to the FDIC special assessment.
- Whether planned buybacks, dividends and the nCino investment remain consistent with regulatory capital, subsidiary dividend capacity and management’s updated capital plan.