FirstBank 3Q results: Key metrics move in positive direction, capital continues to build
SAN JUAN – First BanCorp., the bank holding company for FirstBank Puerto Rico, reported Thursday net income of $36.3 million, or $0.16 per diluted share, for the third quarter of 2018, compared to $31 million, or $0.14 per diluted share, for the second quarter of 2018 and a net loss of $10.8 million, or $0.05 per diluted share, for the third quarter of 2017.
“We are pleased to report another positive quarter of profitability and solid core financial results. Our net income of $36 million was up 17% from the second quarter and our pre-tax, pre-provision income was $60 million. The Puerto Rico economy continues to show improvement in key economic metrics and rebuilding activities are enabling our growth opportunities,” said Aurelio Alemán, president and CEO of First BanCorp.
The bank’s loan portfolio “grew this quarter even with meaningful organic reductions in resolution of non-performing assets. Loan originations and renewals for the third quarter were up in all major categories: commercial and construction increased to $423 million; consumer and auto loan originations increased to $316 million; and residential mortgage reached $142 million. Net of non-performing loan reductions, the performing loan book grew approximately $107 million in Puerto Rico and over $50 million in Florida,” Alemán said.
“Our core deposits remained flat while improving the mix of non-interest bearing which now represents 25% of our deposit base. Increased investor demand and the excellent work by our credit and special assets teams led to a reduction of non-performing assets of $98.6 million this quarter. Non-performing assets declined by 16% and now represent 4.3% of assets,” Alemán explained.
“We are excited to be celebrating our 70th Anniversary as a Puerto Rico corporation and this October also marks our 25th year as a listed Company on the New York Stock Exchange. September marked another anniversary for the corporation, one year since the devastating storms that ravished our markets. We are very pleased with the progress achieved, and of what our team has been able to accomplish and our contribution to the recovery.
“Over the past year, our dedicated employees volunteered significant hours to support our communities, we originated and renewed approximately $3.0 billion in loans and credit facilities, we grew our core deposits by $1.0 billion, or 13%, reduced our non-performing assets by 18%, and today our total capital exceeds $1.9 billion. Every key metric has moved in a positive direction and capital continues to build. With the economic recovery still underway we remain realistic about the remaining challenges, but optimistic about growth opportunities in our market as our franchise continues to deliver solid operating results,” he added in his statement.
As of Sept. 30, the corporation had $221.4 million of direct exposure to the Puerto Rico Government, its municipalities and public corporations. Approximately $192 million of the exposure consisted of loans and obligations of municipalities that are “supported by assigned property tax revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment,” the earnings release reads.
The holding company said its total direct exposure also includes obligations of the Puerto Rico Government, specifically bonds of the Puerto Rico Housing Finance Authority, “at an amortized cost of $8.1 million as part of its available-for-sale investment securities portfolio recorded on its books at a fair value of $6.9 million as of September 30, 2018.”
First BanCorp’s senior management hosted an earnings conference call and live webcast Thursday, a replay of which may be accessed via the investor relations section of the corporation’s website.
The earnings release included the following highlights:
- Net income of $36.3 million, or $0.16 per diluted share, compared to $31.0 million, or $0.14 per diluted share, for the second quarter of 2018.
- On a non-GAAP basis, adjusted net income of $34.7 million (which excludes the effect of events that are discussed in the Special Items section below and consists 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), compared to adjusted net income of $30.2 million for the second quarter of 2018.
- Net interest income increased by $2.0 million to $132.5 million, compared to $130.5 million for the second quarter of 2018, primarily due to the growth in the consumer loan portfolio and the use of liquidity to pay down borrowings and maturing brokered certificates of deposit. Net interest income also benefited from one additional day in the third quarter.
- Net interest margin was 4.54%, compared to 4.49% for the second quarter of 2018.
- Provision for loan and lease losses decreased by $8.0 million to $11.5 million, compared to $19.5 million for the second quarter of 2018. The decrease was primarily due to lower provisions on consumer and residential mortgage loans, partially offset by the effect of a $10.1 million charge associated with non-performing commercial and construction loans transferred to held for sale in the third quarter.
- Non-interest income decreased by $2.0 million to $18.5 million compared to $20.5 million for the second quarter of 2018, primarily due to a $2.7 million net loss from sales in the third quarter of $24.5 million of non-performing commercial and construction loans held for sale.
- Non-interest expenses increased by $0.7 million to $90.9 million, compared to $90.2 million for the second quarter of 2018, primarily due to higher professional service fees and occupancy and equipment costs.
- Income tax expense increased by $2.1 million to $12.3 million, compared to $10.2 million for the second quarter of 2018, primarily due to higher pre-tax earnings for the third quarter.
- Credit quality variances:
- Non-performing assets decreased in the quarter by $98.6 million, to $522.8 million as of September 30, 2018. The decrease was primarily due to the restoration to accrual status of a $35.7 million commercial and industrial loan, sales of $24.5 million of non-performing commercial and construction loans held for sale, and charge-offs totaling $12.5 million taken on non-performing commercial and construction loans transferred to held for sale in the third quarter.
- Non-performing loan inflows amounted to $32.0 million, compared to inflows of $105.2 million in the second quarter of 2018.
- The other real estate owned (“OREO”) portfolio balance decreased by $8.1 million, driven by sales of residential properties in Puerto Rico.
- The annualized net charge-off rate for the third quarter was 1.52%, compared to 1.07% for the second quarter of 2018. The increase was driven by the aforementioned charge-offs taken on loans transferred to held for sale. Approximately $10.9 million of consumer loan charge-offs recorded in the third quarter were attributable to previously-established hurricane-related qualitative reserves associated with Hurricanes Irma and Maria.
- Total deposits, excluding brokered CDs and government deposits, of $7.6 billion as of September 30, 2018, remained relatively flat compared with the second quarter of 2018 as the increase in demand deposits was offset by reductions in savings and retail CDs balances. The total average cost of non-brokered deposits increased in the third quarter only by 1 basis point to 0.64% compared to 0.63% for the second quarter of 2018.
- Brokered CDs decreased in the quarter by $148.9 million to $673.7 million as of September 30, 2018.
- Government deposits increased in the quarter by $87.0 million to $895.7 million as of September 30, 2018, reflecting increases of $60.2 million and $26.8 million in Puerto Rico and the Virgin Islands, respectively.
- Total loans increased in the quarter by $61.6 million to $8.8 billion as of September 30, 2018. The increase reflects growth of $76.1 million in the consumer loan portfolio, primarily in auto and personal loans in Puerto Rico, and $20.2 million in commercial and construction loans, partially offset by a decline of $34.7 million in residential mortgage loans. Excluding the effect of non-performing loans sold and charge-offs taken on loans transferred to held for sale in the third quarter, the commercial and construction loan portfolio in Puerto Rico increased by $14.1 million reflecting an increased volume of new commercial term loan originations. In addition, the commercial and construction loan portfolio in the Florida region grew by $48.3 million.
- Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity), amounted to $794.6 million in the third quarter of 2018, compared to $726.8 million in the second quarter of 2018. The increase was reflected in all major loan categories, including a $37.2 million increase in commercial and construction loan originations, a $28.9 million increase in consumer loan originations, and a $1.7 million increase in residential mortgage loan originations.
- Total capital, common equity Tier 1 capital, Tier 1 capital, and leverage ratios of 23.85%, 20.13%, 20.54%, and 14.85%, respectively, as of September 30, 2018. Tangible common equity ratio of 15.22% as of September 30, 2018.