First BanCorp. Announces Earnings for the Quarter Ended September 30, 2023

• Net income of $82.0 million, or $0.46 per diluted share, for the third quarter of 2023, compared to $70.7 million, or $0.39 per diluted share, for the second quarter of 2023. Return on average assets for the third quarter of 2023 at 1.72%, compared to 1.51% for the second quarter of 2023.
• Income before income taxes of $109.0 million for the third quarter of 2023, compared to $101.0 million for the second quarter of 2023.
• On a non-GAAP basis, pre-tax, pre-provision income of $113.4 million for the third quarter of 2023, compared to adjusted pre-tax, pre-provision income of $118.0 million for the second quarter of 2023.
• Net interest income of $199.7 million for the third quarter of 2023, compared to $199.8 million for the second quarter of 2023. Net interest margin decreased to 4.15% for the third quarter of 2023 from 4.23% for the second quarter of 2023, mainly driven by an increase in the mix of interest-bearing deposits to total deposits and continued market-driven increases in deposit costs that exceeded the benefit of higher yields in the loan portfolio and other interest-earning assets.
• Provision for credit losses decreased to $4.4 million for the third quarter of 2023, compared to $22.2 million for the second quarter of 2023. The decrease is mainly related to the reserve recorded during the second quarter of 2023 as a result of an increased uncertainty in the forecasted commercial real estate price index (“CRE price index”) and a reduction in the allowance for credit losses (“ACL”) for held-to-maturity debt securities during the third quarter of 2023. The ratio of the ACL for loans and finance leases to total loans held for investment was 2.21% as of September 30, 2023, compared to 2.28% as of June 30, 2023.
• Non-interest income decreased to $30.3 million for the third quarter of 2023, compared to $36.3 million for the second quarter of 2023, mainly driven by the effect during the second quarter of 2023 of a $3.6 million gain recognized from a legal settlement and a $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures.
• Non-interest expenses increased by $3.7 million to $116.6 million for the third quarter of 2023, compared to $112.9 million for the second quarter of 2023, mainly driven by an increase in employees’ compensation and benefits expense as a result of merit compensation increases implemented in July 2023. The efficiency ratio for the third quarter of 2023 was 50.71%, compared to 47.83% for the second quarter of 2023. On a non-GAAP basis, excluding the aforementioned gains, the efficiency ratio for the second quarter of 2023 was 48.91%.
• Income tax expense decreased to $27.0 million for the third quarter of 2023, compared to $30.3 million for the second quarter of 2023, as a result of a lower effective tax rate, partially offset by higher pre-tax income when compared to the previous quarter.
• Credit quality variances:

– Non-performing assets increased by $9.1 million to $130.2 million as of September 30, 2023, mainly driven by the inflow of a $9.5 million commercial and industrial loan in the Puerto Rico region.

– Annualized net charge-offs to average loans ratio decreased to 0.48% for the third quarter of 2023, compared to 0.67% for the second quarter of 2023, mainly driven by a $6.2 million charge-off recorded on a commercial and industrial participated loan in the Florida region during the second quarter of 2023 and a $1.4 million recovery recorded on a construction loan in the Puerto Rico region during the third quarter of 2023.

• Total loans increased by $226.3 million from the prior quarter to $12.0 billion as of September 30, 2023. On a portfolio basis, the variance consisted of increases of $119.6 million in commercial and construction loans, $93.2 million in consumer loans, primarily finance leases and auto loans, and $13.5 million in residential mortgage loans. In terms of geography, the total loan growth consisted of increases of $174.1 million in the Puerto Rico region, $46.4 million in the Florida region, and $5.8 million in the Virgin Islands region.
• Total loan originations, including refinancings, renewals, and draws from existing commitments (other than credit card utilization activity), amounted to $1.2 billion in the third quarter of 2023, an increase of $163.1 million compared to the second quarter of 2023. The growth in total loan originations consisted of increases of $138.0 million in commercial and construction loans, $10.5 million in consumer loans, and $14.6 million in residential mortgage loans.
• Government deposits, which are fully collateralized, decreased in the third quarter of 2023 by $172.2 million and totaled $3.3 billion as of September 30, 2023. The decline in government deposits was mainly in the Puerto Rico region.
• Excluding brokered certificates of deposit (“brokered CDs”) and government deposits, total deposits decreased by $159.0 million to $12.9 billion as of September 30, 2023, reflecting reductions of $62.1 million in the Virgin Islands region, $52.0 million in the Puerto Rico region, and $44.9 million in the Florida region. The decrease in total deposits, excluding brokered CDs and government deposits, is net of a $77.6 million increase in time deposits.
• Brokered CDs decreased by $53.3 million during the third quarter of 2023 to $310.3 million as of September 30, 2023, which represents 1.9% of total deposits.
• Borrowings decreased by $73.9 million during the third quarter of 2023 to $0.7 billion as of September 30, 2023, driven by the repayment at maturity of a short-term repurchase agreement during the third quarter of 2023.
• Cash and cash equivalents decreased to $584.9 million as of September 30, 2023. When adding $2.1 billion of free high-quality liquid securities that could be liquidated or pledged within one day, total core liquidity amounted to $2.7 billion as of September 30, 2023, or 14.58% of total assets, compared to 16.70% as of June 30, 2023. Including the $947.8 million in available lending capacity at the Federal Home Loan Bank (“FHLB”), available liquidity amounted to 19.67% of total assets as of September 30, 2023, compared to 21.82% as of June 30, 2023.
• Capital ratios exceed required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s estimated total capital, common equity tier 1 (“CET1”) capital, tier 1 capital, and leverage ratios were 18.84%, 16.35%, 16.35%, and 10.57%, respectively, as of September 30, 2023. On a non-GAAP basis, the tangible common equity ratio was 6.74% as of September 30, 2023, compared to 7.03% as of June 30, 2023.

SAN JUAN, Puerto Rico–(BUSINESS WIRE)–First BanCorp. (the “Corporation” or “First BanCorp.”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported a net income of $82.0 million, or $0.46 per diluted share, for the third quarter of 2023, compared to $70.7 million, or $0.39 per diluted share, for the second quarter of 2023, and $74.6 million, or $0.40 per diluted share, for the third quarter of 2022.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “For the third quarter we earned $82.0 million in net income and delivered a strong return on average assets of 1.72% driven by a combination of loan growth across all our businesses, disciplined expense management, and encouraging economic trends in our main market. The strength of our franchise and the competitive positioning of our balance sheet allows us to deliver consistent earnings even during a challenging period for the banking industry.”

Alemán continued: “Total loans increased 1.5% during the quarter, or 6% on an annualized basis, underscored by healthy levels of commercial and consumer loan originations across all regions. Our well diversified loan portfolio has been sequentially expanding for the last seven quarters as we continue to focus on executing our strategy of capturing our fair share of the segments we serve. Total core deposits, other than brokered CDs and government deposits, decreased by 1.2% to $12.9 billion. The net reduction in core deposits during the quarter was primarily related to the erosion of excess liquidity in the market and the search for higher yielding alternatives by retail customers outside the traditional banking sector, offset by a stabilization in commercial deposit balances due to increased business activity in Puerto Rico.

The economy in Puerto Rico continues to perform well, labor market trends remain stable, and enduring consumer confidence is evidenced by most indicators despite higher rates and inflationary pressures. We have ample experience operating under changing market conditions and will continue to leverage our risk and control framework to continue supporting our customers throughout economic cycles.”

Alemán concluded: “Finally, we repurchased $75.0 million in shares of common stock during the quarter thereby finalizing the remaining buyback authorization under the 2022 capital plan. In consideration of our strong capital levels and the Board of Directors’ confidence in our strategy and outlook, we expect to continue repurchasing shares of common stock during the fourth quarter under the 2023 capital plan authorization of $225 million. I want to thank all our employees for their continued efforts to best serve our clients and communities and all our shareholders for their unwavering support.”

NON-GAAP DISCLOSURES

This press release contains GAAP financial measures and non-GAAP financial measures. Non-GAAP financial measures are used when management believes that the presentation of these non-GAAP financial measures enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. The Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process. Where non-GAAP financial measures are used, the most comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the most comparable GAAP financial measure, can be found in the text or in the tables in or attached to this press release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.

Certain non-GAAP financial measures, such as adjusted net income, adjusted pre-tax, pre-provision income, adjusted non-interest income, and adjusted efficiency ratio, exclude the effect of items that management believes are not reflective of core operating performance (the “Special Items”). Other non-GAAP financial measures include adjusted net interest income and margin, tangible common equity, tangible book value per common share, and certain capital ratios. These measures should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release, and the Corporation’s other financial information that is presented in accordance with GAAP.

Special Items

The financial results for the third quarter of 2023 and 2022 did not include any significant Special Items. The financial results for the second quarter of 2023 included the following Special Items:

Quarter ended June 30, 2023

– A $3.6 million ($2.3 million after-tax) gain recognized from a legal settlement reflected in the condensed consolidated statements of income as part of other non-interest income.

– A $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures reflected in the condensed consolidated statements of income as “Gain on early extinguishment of debt.” The junior subordinated debentures are reflected in the condensed consolidated statements of financial condition as “Other borrowings.” The purchase price equated to 92.5% of the $21.4 million par value. The 7.5% discount resulted in the gain of $1.6 million. The gain, realized at the holding company level, had no effect on the income tax expense in the second quarter of 2023.

Non-GAAP Financial Measures

Adjusted Pre-Tax, Pre-Provision Income

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes or health epidemics. Adjusted pre-tax, pre-provision income, as defined by management, represents income before income taxes adjusted to exclude the provisions for credit losses on loans, unfunded loan commitments and debt securities and any gains or losses on sales of investment securities. In addition, from time to time, earnings are also adjusted for certain items that management believes are not reflective of core operating performance regarded as Special Items.

Tangible Common Equity Ratio and Tangible Book Value per Common Share

The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other intangibles. Tangible assets are total assets less goodwill and other intangibles. Management uses and believes that many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with other more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosure of these financial measures may be useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.

Net Interest Income Excluding Valuations, and on a Tax-Equivalent Basis

Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis in order to provide to investors additional information about the Corporation’s net interest income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that management believes facilitates comparison of results to the results of peers.

NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)

Net income was $82.0 million for the third quarter of 2023, or $0.46 per diluted share, compared to $70.7 million, or $0.39 per diluted share, for the second quarter of 2023. The following table reconciles, for the second quarter of 2023 and nine-month period ended September 30, 2023, the net income to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures that exclude the significant Special Items identified above, and shows the net income and earnings per diluted share for the third quarter of 2023 and 2022, and nine-month period ended September 30, 2022.

INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)

Income before income taxes was $109.0 million for the third quarter of 2023, compared to $101.0 million for the second quarter of 2023. For the nine-month period ended September 30, 2023, income before income taxes was $312.6 million, compared to $341.1 million for the same period in 2022. Pre-tax, pre-provision income was $113.4 million for the third quarter of 2023, compared to adjusted pre-tax, pre-provision income of $118.0 million for the second quarter of 2023. For the nine-month period ended September 30, 2023, adjusted pre-tax, pre-provision income was $349.5 million, compared to pre-tax, pre-provision income of $353.0 million for the same period in 2022. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters and for the nine-month periods ended September 30, 2023 and 2022:

NET INTEREST INCOME

The following table sets forth information concerning net interest income for the last five quarters:

Net interest income amounted to $199.7 million for the third quarter of 2023, a decrease of $0.1 million, compared to $199.8 million for the second quarter of 2023. The net interest income for the third quarter of 2023 included a net benefit of approximately $1.1 million associated with an additional day in the third quarter of 2023, as compared to the second quarter. The decrease in net interest income reflects the following:

• A $12.7 million increase in interest expense on interest-bearing deposits, including:

– An $8.4 million increase in interest expense on interest-bearing checking and saving accounts, of which approximately $5.9 million was driven by an increase in average rates paid in the third quarter of 2023, primarily in public sector deposits; $2.2 million of additional interest expense associated to a $438.9 million increase in the average balance; and $0.3 million related to an additional day in the third quarter of 2023. The average cost of interest-bearing checking and saving accounts increased by 35 basis points to 1.53% as compared to 1.18% in the previous quarter. Excluding public sector deposits, the average cost of interest-bearing checking and saving accounts for the third quarter of 2023 was 0.74%, as compared to 0.67% in the previous quarter.

– A $4.2 million increase in interest expense on time deposits, excluding brokered CDs, mainly due to approximately $2.7 million associated with higher rates paid in the third quarter of 2023 on new issuances and renewals; $1.3 million of additional interest expense associated with a $196.8 million increase in the average balance; and an approximately $0.2 million increase associated with an additional day in the third quarter of 2023. The average cost of non-brokered time deposits in the third quarter of 2023 increased 41 basis points to 2.91% when compared to the previous quarter.

• A $0.2 million decrease in interest income on residential mortgage loans.

Partially offset by:

• A $6.1 million increase in interest income on commercial and construction loans, of which approximately $2.2 million was related to the $104.5 million increase in the average balance of this portfolio, approximately $1.7 million was related to the effects of higher interest rates in the upward repricing of variable-rate loans and new loan originations, interest income of $1.2 million was recognized on the collection of a previously charged-off construction loan in the Puerto Rico region, and approximately $1.0 million was associated with an additional day in the third quarter of 2023. The increase in the average balance of the commercial and construction portfolio included the refinancing during the third quarter of 2023 of a $46.5 million municipal bond, which part of the held-to-maturity portfolio, into a shorter-term commercial loan structure.

• A $4.0 million increase in interest income on consumer loans and finance leases, of which approximately $2.

Contacts

First BanCorp.
Ramon Rodriguez

Senior Vice President

Corporate Strategy and Investor Relations

[email protected]
(787) 729-8200 Ext. 82179

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