First Bancorp reports net income of $2.3 million
SAN JUAN – First BanCorp., the bank holding company for FirstBank Puerto Rico, reported net income of $2.3 million, or $0.01 per diluted share, for the first quarter of 2020, compared to $36.4 million, or $0.16 per diluted share, for the fourth quarter of 2019, and $43.3 million, or $0.20 per diluted share, for the first quarter of 2019.
Financial results for the first quarter of 2020 included “the effect of a reserve build for loans, finance leases and debt securities of $59.8 million ($39.8 million after-tax, or $(0.18) per diluted share), driven by the effect of the COVID-19 pandemic on forecasted economic and market conditions, and a tax-exempt gain from sales of investment securities of $8.2 million, or $0.04 per diluted share,” according to the release.
Aurelio Alemán, president and CEO of First BanCorp., commented: “Our hearts go out to those impacted by this pandemic from both a humanitarian and economic standpoint. This has been devastating to many families and we remain vigilant as certain markets begin to gradually open. I want to personally acknowledge and thank my team and our dedicated frontline employees who have been supporting our clients every day during the COVID-19 pandemic general lockdown, working with borrowers by swiftly implementing loan moratoriums and processing SBA PPP applications. We are exceptional because of the deep talent within our bench. Our team has proven time and time again their dedication and superior level of service, which makes us who we are as a company.
“We are entering this crisis from a position of institutional strength to support our people, clients and shareholders. We are extremely well-capitalized, with a total risk-based capital ratio of 25.4%, among the best capitalized banks in the U.S. and our reserve coverage (with the adoption of CECL) of 3.24% is also among the highest levels for the banking sector. Our advanced operational and digital capabilities have allowed us to service our communities under a social distancing environment. Our dividend is supported by our strong capital position and strong pre-tax, pre-provision revenue, which was $68 million in the first quarter. The quarter results and business volume reflect the impact of our main market lockdown that began on March 16th.
“The regulatory support and the unprecedented level of federal and local economic stimulus will contribute to mitigate credit quality deterioration in the short term. Moreover, we have a proven and experienced management team which has built a risk management framework to manage and mitigate emerging risks from the challenges that lie ahead. The past decade has tested our franchise’s strength, resilience and capacity to face new challenges; our organization has been through more than our fair share of financial crises and natural disasters. We look forward to returning to some sense of normalcy and actively contributing to the recovery of our clients, communities and markets.”
The following results were also highlighted by the financial institution:
- Loss before income taxes of $0.7 million for the first quarter of 2020, compared to income before income taxes of $53.5 million for the fourth quarter of 2019.
- On a non-GAAP basis, adjusted pre-tax, pre-provision income of $68.5 million for the first quarter of 2020, compared to $72.1 million for the fourth quarter of 2019.
- Net interest income decreased by $1.3 million to $138.6 million for the first quarter of 2020, compared to $139.9 million for the fourth quarter of 2019, primarily due to the downward repricing of variable-rate commercial loans during the first quarter of 2020, as well as the adverse effect of one less day in the first quarter.
- Net interest margin was 4.63% for the first quarter of 2020, compared to 4.70% for the fourth quarter of 2019, reflecting, among other things, the effect of a lower interest rate environment on variable-rate commercial loans and credit card loans.
- Provision for credit losses on loans, finance leases and debt securities increased by $68.9 million to $77.4 million for the first quarter of 2020, compared to a provision of $8.5 million for the fourth quarter of 2019, driven by the reserve builda of $59.8 million in the first quarter in connection with the effect of the COVID-19 pandemic on forecasted economic and market conditions. Effective January 1, 2020, First BanCorp. (the “Corporation”) adopted the current expected credit loss impairment model (“CECL”) required by the Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”), which replaced the incurred loss methodology. ASC 326 does not require restatement of comparative period financial statements; as such, results for the first quarter of 2020 reflect the adoption of ASC 326, while prior periods reflect results under the previously required incurred loss methodology. The adoption of ASC 326 resulted in a cumulative increase of approximately $93.2 million in the total allowance for credit losses (“ACL”) as of January 1, 2020.
- Non-interest income increased by $5.8 million to $30.2 million for the first quarter of 2020, compared to $24.4 million for the fourth quarter of 2019, primarily due to an $8.2 million tax-exempt gain on sales of approximately $275.6 million of U.S. agencies mortgage-backed securities (“MBS”) in the first quarter of 2020, partially offset by the effect in the fourth quarter of 2019 of a $2.1 million gain from the sale of a $6.7 million nonaccrual commercial mortgage loan held for sale.
- Non-interest expenses decreased by $10.1 million to $92.2 million for the first quarter of 2020, compared to $102.3 million for the fourth quarter of 2019, primarily due to a $10.0 million decrease in costs associated with the pending acquisition of Banco Santander Puerto Rico (“BSPR”) and related restructuring initiatives.
- Income tax benefit of $3.0 million for the first quarter of 2020, compared to income tax expense of $17.1 million for the fourth quarter of 2019.
- The governor of Puerto Rico declared a full lock down of businesses effective March 16, 2020 where only essential functions were allowed to open. Only some of the functions within the financial businesses were considered essential, therefore, there have been limited loan originations since that date and the Corporation has experienced significant reductions in transaction volume due to business closures.
- Credit quality variances:
-Non-performing assets (“NPAs”) remained relatively flat with a total of $317.8 million as of March 31, 2020, an increase of $0.4 million, compared to $317.4 million as of December 31, 2019. The increase was primarily related to consumer and residential mortgage loans that migrated to nonaccrual status prior to the deferral payment programs established by the Corporation to assist borrowers affected by the COVID-19 pandemic, partially offset by reductions in commercial and construction nonaccrual loans.
-The annualized net charge-off rate was 0.78% for the first quarter of 2020, compared to 0.84% for the fourth quarter of 2019.
- Total deposits, excluding brokered deposits and government deposits, increased by $91.2 million to $7.8 billion as of March 31, 2020, reflecting an increase of $150.5 million in the Puerto Rico region, partially offset by reductions of $46.7 million and $12.6 million in the Florida and Virgin Islands regions, respectively. The variance in the Puerto Rico region reflects increases in retail time deposits, as well as savings and demand deposit account balances.
- Brokered certificates of deposits (“CDs”) increased in the quarter by $16.9 million to $452.0 million as of March 31, 2020. In addition, non-maturity brokered deposits, such as a money market account maintained by a deposit broker, increased in the quarter by $100.9 million to $223.2 million as of March 31, 2020.
- Government deposits increased in the quarter by $5.0 million and totaled $1.1 billion as of March 31, 2020, reflecting an increase of $13.1 million in the Virgin Islands region, partially offset by an $8.1 million decrease in the Puerto Rico region.
- Total loans increased in the quarter by $9.3 million, totaling $9.1 billion as of March 31, 2020. The increase consisted of a $63.8 million increase in commercial and construction loans, primarily reflected in the Florida region, and a $31.0 million increase in consumer loans, partially offset by an $85.5 million decrease in residential mortgage loans.
- Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $802.6 million in the first quarter of 2020, compared to $1.1 billion in the fourth quarter of 2019. The decrease consisted of reductions of $228.5 million in commercial and construction loan originations, primarily due to both a decrease in new loan originations and lower utilization of credit lines, $50.5 million in residential mortgage loan originations, and $50.3 million in consumer loan originations. These reductions reflect the effect of disruptions in the loan underwriting and closing processes caused by the COVID-19 pandemic, as a result of quarantines and the lockdown of non-essential businesses that began in Puerto Rico on March 16, 2020, and seasonally lower residential and consumer loan originations.
- Liquidity levels have remained high with the cash and liquid securities to total assets ratio exceeding 17.5%, compared to 15.8% as of December 31, 2019. We are confident we can continue to sustain high liquidity levels based on the inflow of funds from the local and federal stimulus packages and the availability of alternate funding sources such as the Primary Credit Federal Reserve (FED) discount window program.
- Total capital, common equity Tier 1 capital (“CET1”), Tier 1 capital, and leverage ratios of 25.42%, 21.79%, 22.19%, and 15.98%, respectively, as of March 31, 2020. The tangible common equity ratio was 16.36% as of March 31, 2020. As permitted by the regulatory capital framework, the Corporation elected the option to delay for two years the estimate of the CECL methodology’s effect on regulatory capital, relative to the incurred loss methodology’s effect on capital, followed by a three-year transition period.