First Bancorp. Announces Earnings for the Quarter Ended September 30, 2020
First BanCorp. (NYSE: FBP) reported net income of $28.6 million ($0.13 per diluted share) for Q3 2020, an increase from $21.3 million in Q2 2020 but a decrease from $46.3 million in Q3 2019. The results included a provision for credit losses of $46.9 million, largely due to the acquisition of BSPR, finalized on September 1, 2020. The acquisition added $5.6 billion in total assets, including $2.6 billion in loans and $4.2 billion in deposits. Net interest income rose to $148.7 million, driven by increased loan balances, while non-interest income totaled $29.9 million.
- Net income increased to $28.6 million, up 34.4% quarter-over-quarter.
- Net interest income rose to $148.7 million, a $13.5 million increase from Q2 2020.
- Acquisition of BSPR added $5.6 billion in total assets, expanding market presence.
- Pre-tax pre-provision income grew by 14.6% to over $77 million.
- Provision for credit losses of $46.9 million highlights potential risks.
- Net income decreased by 38.3% year-over-year from $46.3 million in Q3 2019.
- Net interest margin fell to 3.93%, down from 4.22% in Q2 2020.
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of
The Corporation completed the acquisition of BSPR effective September 1, 2020. The Corporation’s financial statements for the third quarter include 30 days of BSPR operations, post-acquisition, which have an effect on the comparability of the current quarter’s results to prior periods. The Corporation’s statement of financial condition as of September 30, 2020 reflects
The following table summarizes the composition of the earnings reported for the third quarter of 2020:
| First BanCorp. Legacy Operations |
BSPR Acquired Operation |
Other Transactions |
Total | |||||||||||||
| Net Interest Income | $ |
134,659 |
|
$ |
14,037 |
|
$ |
- |
|
$ |
148,696 |
|
||||
| Provision for Credit Losses (legacy operations) |
|
8,032 |
|
|
- |
|
|
- |
|
|
8,032 |
|
||||
| Day 1 Reserves Required for Acquired Non-PCD Loans and related commitments |
|
- |
|
|
- |
|
|
38,882 |
|
|
38,882 |
|
||||
| Provision for Credit Losses |
|
8,032 |
|
|
- |
|
|
38,882 |
|
|
46,914 |
|
||||
| Net interest income after provision for credit losses |
|
126,627 |
|
|
14,037 |
|
|
(38,882 |
) |
|
101,782 |
|
||||
| Non-interest Income |
|
22,861 |
|
|
1,785 |
|
|
- |
|
|
24,646 |
|
||||
| Gain on sale of investment securities |
|
- |
|
|
- |
|
|
5,288 |
|
|
5,288 |
|
||||
| Total non-interest income |
|
22,861 |
|
|
1,785 |
|
|
5,288 |
|
|
29,934 |
|
||||
| Non interest expenses |
|
86,390 |
|
|
10,677 |
|
|
- |
|
|
97,067 |
|
||||
| Merger and Restructuring costs |
|
- |
|
|
- |
|
|
10,441 |
|
|
10,441 |
|
||||
| Total non-interest expenses |
|
86,390 |
|
|
10,677 |
|
|
10,441 |
|
|
107,508 |
|
||||
| Income before income taxes |
|
63,098 |
|
|
5,145 |
|
|
(44,035 |
) |
|
24,208 |
|
||||
| Income tax (expense) benefit |
|
(18,801 |
) |
|
(1,692 |
) |
|
16,898 |
|
|
(3,595 |
) |
||||
| Partial reversal of deferred tax asset valuation allowance |
|
- |
|
|
- |
|
|
8,000 |
|
|
8,000 |
|
||||
| Net Income (Loss) | $ |
44,297 |
|
$ |
3,453 |
|
$ |
(19,137 |
) |
$ |
28,613 |
|
||||
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are very pleased with the closing of the strategic acquisition of Banco Santander Puerto Rico solidifying our position on the island and strengthening our competitiveness in commercial, retail and residential lending. The acquisition brings us greater reach and market share gains across the island, as well as new levers to improve our efficiency metrics. This acquisition contributed
There is still over
We generated net income of
The integration efforts are well underway, I am very proud of what the combined team has been able to accomplish thus far and we are excited for the future growth prospects of our institution.”
NON-GAAP DISCLOSURES
This press release includes certain non-GAAP financial measures, including adjusted net income, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, adjusted non-interest expenses, tangible common equity, tangible book value per common share, certain capital ratios, and certain other financial measures that exclude the effect 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 (the “Special Items”), and should be read in conjunction with the discussion below in Basis of Presentation – Use of Non-GAAP Financial Measures and the accompanying tables (Exhibit A), which are an integral part of this press release.
BSPR ACQUISITION
Effective September 1, 2020, the Corporation completed the acquisition of BSPR pursuant to a stock purchase agreement dated as of October 21, 2019. The transaction was structured as an all-cash acquisition of all of the issued and outstanding common stock of Santander Bancorp, the sole shareholder of BSPR, a corporation incorporated under the laws of the Commonwealth of Puerto Rico and sole shareholder of Santander Insurance Agency, Inc. (collectively referred to as “BSPR”). In consideration for the acquisition, the Corporation paid cash in an amount of approximately (i)
The following table summarizes the estimated fair value of assets acquired and liabilities assumed of BSPR as of September 1, 2020 under the acquisition method of accounting:
| (In thousands) | |||
| Total purchase price consideration (cash) | $ | 1,277,626 |
|
| Fair value of assets acquired: | Fair Value | ||
| Cash and cash equivalents | $ | 1,684,252 |
|
| Investment securities available for sale | 1,167,225 |
||
| Loans, net | 2,514,916 |
||
| Premises and equipment, net | 12,499 |
||
| Intangible assets | 39,232 |
||
| Other assets | 189,131 |
||
| Total assets and identifiable intangible assets acquired | $ | 5,607,255 |
|
| Fair value of liabilities assumed: | |||
| Deposits | $ |
4,194,940 |
|
| Other liabilities | 140,992 |
||
| Total liabilities assumed | 4,335,932 |
||
| Fair value of net assets and identifiable intangible assets acquired | $ | 1,271,323 |
|
| Goodwill | $ | 6,303 |
|
As of September 30, 2020, the purchase price remains subject to final adjustments and fair value measurements remain preliminary due to the timing of the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date and expects to finalize its analysis of the acquired assets and assumed liabilities over the next few months, but not later than one year after the acquisition.
SPECIAL ITEMS
The financial results for the third and second quarters of 2020 and the third quarter of 2019 included the following significant Special Items:
Quarter ended September 30, 2020
-
Merger and restructuring costs of
$10.4 million ($6.5 million after-tax) in connection with the acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the third quarter of 2020 primarily included consulting, legal, system conversions and other integration related efforts. -
An
$8.0 million tax benefit related to a partial reversal of the deferred tax asset valuation allowance. -
A
$5.3 million aggregate gain on sales of approximately$116.6 million of U.S. agencies MBS and$803.3 million of U.S. Treasury Notes executed in the latter part of September. The gain on tax-exempt securities or realized at the tax-exempt international banking entity subsidiary level had no effect in the income tax expense recorded in the third quarter of 2020. -
Costs of
$1.0 million ($0.6 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security matters.
Quarter ended June 30, 2020
-
A
$5.0 million ($3.1 million after-tax) benefit resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017. -
Merger and restructuring costs of
$2.9 million ($1.8 million after-tax) in connection with the acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the second quarter of 2020 primarily included consulting, legal, and other pre-conversion related efforts. -
Costs of
$3.0 million ($1.9 million after-tax) related to the COVID-19 pandemic response efforts, including approximately$1.7 million in bonuses paid to branch personnel and other essential employees for working during the pandemic, as well as other employee-related expenses, including expenses for the administration of COVID-19 tests and purchases of personal protective equipment. -
A
$0.2 million loss realized on sales of U.S. agencies MBS. The loss, realized at the tax-exempt international banking entity subsidiary, had no effect on the income tax expense recorded in the second quarter of 2020.
Quarter ended September 30, 2019
-
A
$3.0 million ($1.8 million after-tax) positive effect in earnings related to the acceleration of the discount accretion from the payoff of an acquired commercial mortgage loan. -
A
$0.4 million ($0.2 million after-tax) benefit resulting from hurricane-related insurance recoveries related to repairs and maintenance costs incurred on facilities in the U.S. Virgin Islands.
NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)
Net income was
| Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||
| (In thousands, except per share information) | September 30, 2020 | June 30, 2020 | September 30, 2019 | ||||||||||
| Net income, as reported (GAAP) | $ |
28,613 |
|
$ |
21,256 |
|
$ |
46,327 |
|
||||
| Adjustments: | |||||||||||||
| Merger and restructuring costs |
|
10,441 |
|
|
2,902 |
|
|
592 |
|
||||
| Partial reversal of deferred tax asset valuation allowance |
|
(8,000 |
) |
|
- |
|
|
- |
|
||||
| Accelerated discount accretion due to early payoff of acquired loan |
|
- |
|
|
- |
|
|
(2,953 |
) |
||||
| Benefit from hurricane-related insurance recoveries |
|
- |
|
|
(5,000 |
) |
|
(379 |
) |
||||
| (Gain) loss on sales of investment securities |
|
(5,288 |
) |
|
155 |
|
|
- |
|
||||
| Gain on early extinguishment of debt |
|
(94 |
) |
|
- |
|
|
- |
|
||||
| COVID-19 pandemic-related expenses |
|
962 |
|
|
2,961 |
|
|
- |
|
||||
| Income tax impact of adjustments (1) |
|
(4,276 |
) |
|
(324 |
) |
|
1,028 |
|
||||
| Adjusted net income (Non-GAAP) | $ |
22,358 |
|
$ |
21,950 |
|
$ |
44,615 |
|
||||
| Preferred stock dividends |
|
(669 |
) |
|
(669 |
) |
|
(669 |
) |
||||
| Adjusted net income attributable to common stockholders (Non-GAAP) | $ |
21,689 |
|
$ |
21,281 |
|
$ |
43,946 |
|
||||
| Weighted-average diluted shares outstanding | $ |
217,715 |
|
|
217,570 |
|
$ |
217,227 |
|
||||
| Earnings Per Share - diluted (GAAP) | $ |
0.13 |
|
$ |
0.09 |
|
$ |
0.21 |
|
||||
| Adjusted Earnings Per Share - diluted (Non-GAAP) | $ |
0.10 |
|
$ |
0.10 |
|
$ |
0.20 |
|
||||
| (1) See Basis of Presentation for the individual tax impact related to reconciling items. | |||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)
Income before income taxes was
| (Dollars in thousands) | Quarter Ended | |||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
|
2020 |
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2019 |
|
||||||
| Income (loss) before income taxes | $ |
24,208 |
|
$ |
27,302 |
|
$ |
(701 |
) |
$ |
53,547 |
|
$ |
65,595 |
|
|||||
| Add: Provision for credit losses |
|
46,914 |
|
|
39,014 |
|
|
77,366 |
|
|
8,473 |
|
|
7,398 |
|
|||||
| Less/Add: Net (gain) loss on sales of investment securities |
|
(5,288 |
) |
|
155 |
|
|
(8,247 |
) |
|
- |
|
|
- |
|
|||||
| Add: Credit loss impairment on debt securities (1) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
497 |
|
|||||
| Less: Accelerated discount accretion due to early payoff of acquired loan |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(2,953 |
) |
|||||
| Less: Benefit from hurricane-related insurance recoveries |
|
- |
|
|
(5,000 |
) |
|
(1,153 |
) |
|
(727 |
) |
|
(379 |
) |
|||||
| Less: Gain on early extinguishment of debt |
|
(94 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|||||
| Add: COVID-19 pandemic-related expenses |
|
962 |
|
|
2,961 |
|
|
363 |
|
|
- |
|
|
- |
|
|||||
| Add: Merger and restructuring costs |
|
10,441 |
|
|
2,902 |
|
|
845 |
|
|
10,850 |
|
|
592 |
|
|||||
| Adjusted pre-tax, pre-provision income (2) | $ |
77,143 |
|
$ |
67,334 |
|
$ |
68,473 |
|
$ |
72,143 |
|
$ |
70,750 |
|
|||||
| Change from most recent prior quarter (amount) | $ |
9,809 |
|
$ |
(1,139 |
) |
$ |
(3,670 |
) |
$ |
1,393 |
|
$ |
(262 |
) |
|||||
| Change from most recent prior quarter (percentage) |
|
14.6 |
% |
|
-1.7 |
% |
|
-5.1 |
% |
|
2.0 |
% |
|
-0.4 |
% |
|||||
| (1) ASC 326, which became effective on January 1, 2020, requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down. Thus, credit losses on debt securities recorded prior to January 1, 2020 are presented as credit loss impairment on debt securities in the table above, while credit losses on debt securities recorded after January 1, 2020 are presented as part of provision for credit losses in the table above. | ||||||||||||||||||||
| (2) Non-GAAP financial measure. See Basis of Presentation below for definition and additional information about this non-GAAP financial measure. | ||||||||||||||||||||
Adjusted pre-tax, pre-provision income for the third quarter of 2020 included
NET INTEREST INCOME
The following table sets forth information concerning net interest income during the periods indicated:
| (Dollars in thousands) | Quarter Ended | |||||||||||||||||||
| September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||||
| Net Interest Income | ||||||||||||||||||||
| Interest income | $ |
170,402 |
|
$ |
158,616 |
|
$ |
165,264 |
|
$ |
167,620 |
|
$ |
172,295 |
|
|||||
| Interest expense |
|
21,706 |
|
|
23,406 |
|
|
26,615 |
|
|
27,691 |
|
|
27,870 |
|
|||||
| Net interest income | $ |
148,696 |
|
$ |
135,210 |
|
$ |
138,649 |
|
$ |
139,929 |
|
$ |
144,425 |
|
|||||
| Average Balances | ||||||||||||||||||||
| Loans and leases | $ |
10,163,671 |
|
$ |
9,247,878 |
|
$ |
8,997,418 |
|
$ |
8,952,209 |
|
$ |
9,026,725 |
|
|||||
| Total securities, other short-term investments and interest-bearing cash balances |
|
4,871,710 |
|
|
3,636,532 |
|
|
3,055,546 |
|
|
2,865,530 |
|
|
2,691,584 |
|
|||||
| Average interest-earning assets | $ |
15,035,381 |
|
$ |
12,884,410 |
|
$ |
12,052,964 |
|
$ |
11,817,739 |
|
$ |
11,718,309 |
|
|||||
| Average interest-bearing liabilities | $ |
9,732,691 |
|
$ |
8,436,511 |
|
$ |
8,099,199 |
|
$ |
7,845,104 |
|
$ |
7,819,008 |
|
|||||
| Average Yield/Rate | ||||||||||||||||||||
| Average yield on interest-earning assets - GAAP |
|
4.51 |
% |
|
4.95 |
% |
|
5.51 |
% |
|
5.63 |
% |
|
5.83 |
% |
|||||
| Average rate on interest-bearing liabilities - GAAP |
|
0.89 |
% |
|
1.12 |
% |
|
1.34 |
% |
|
1.40 |
% |
|
1.41 |
% |
|||||
| Net interest spread - GAAP |
|
3.62 |
% |
|
3.83 |
% |
|
4.17 |
% |
|
4.23 |
% |
|
4.42 |
% |
|||||
| Net interest margin - GAAP |
|
3.93 |
% |
|
4.22 |
% |
|
4.63 |
% |
|
4.70 |
% |
|
4.89 |
% |
|||||
Net interest income amounted to
-
A
$5.1 million increase in interest income on commercial and construction loans, primarily due to a$539.9 million increase in the average commercial and construction loan balance. The BSPR acquisition added$1.5 billion of commercial and construction loans, contributing to an increase of$498.1 million in the average balance and$7.8 million in interest income during the third quarter. Total discount accretion related to commercial and construction loans acquired from BSPR amounted to$1.8 million in the third quarter of 2020. In addition, there was a$0.6 million increase in interest income on commercial and construction loans related to the effect of one additional day in the third quarter. These variances were partially offset by the downward repricing of the legacy variable-rate commercial and construction loans portfolio, which resulted in a decrease in interest income of approximately$1.3 million .
The interest rate on approximately38% of the Corporation’s commercial and construction loans, excluding SBA PPP loans, is based upon LIBOR indexes and16% is based upon the Prime rate index. For the third quarter of 2020, the average one-month LIBOR declined 20 basis points, and the average three-month LIBOR declined 36 basis points, compared to the average rates for such indexes during the second quarter of 2020. -
A
$3.8 million increase in interest income on residential mortgage loans, primarily due to a$269.9 million increase in the average balance of this portfolio. The BSPR acquisition added$821.9 million of residential mortgage loans, contributing to an increase of$265.2 million in the average balance and$4.1 million in interest income during the third quarter. Total discount accretion related to residential mortgage loans acquired from BSPR amounted to$0.2 million in the third quarter of 2020. -
A
$3.5 million increase in interest income on consumer loans, primarily due to a$106.1 million increase in the average balance of this portfolio. The BSPR acquisition added$210.9 million of consumer loans, contributing to an increase of$69.9 million in the average balance and$2.5 million in interest income during the third quarter. Total discount accretion related to consumer loans acquired from BSPR amounted to$0.1 million in the third quarter of 2020. The remaining increase was primarily related to both an increase of$36.2 million in the average balance of the legacy consumer loan portfolio, predominantly auto loans, which resulted in an increase in interest income of approximately$0.8 million , and a$0.6 million increase in interest income related to the effect of one additional day in the third quarter. -
A
$1.7 million decrease in interest expense, including a reduction of$0.7 million related to the downward repricing of junior subordinated debentures and variable-rate repurchase agreements tied to the decrease in the three-month LIBOR index, and a$0.9 million decrease in interest expense on interest-bearing deposits. The decrease in interest expense on interest-bearing deposits reflects a reduction of approximately$2.3 million attributable to the lower average rates paid on legacy interest-bearing checking, savings, and non-brokered time deposits, partially offset by an increase of approximately$1.3 million related to an increase of$1.3 billion in the average balance of interest-bearing deposits. The BSPR acquisition added$2.9 billion of interest-bearing deposits, contributing to an increase of$977.2 million in the average balance and$0.8 million in interest expense during the third quarter (net of a$0.3 million premium accretion). The average cost of interest-bearing deposits assumed from BSPR was0.34% during the month of September, which was below the average cost of0.72% for the legacy non-brokered interest-bearing deposits for the third quarter of 2020.
Partially offset by:
-
A
$0.7 million decrease in interest income on investment securities, primarily due to a$2.7 million increase in U.S. agencies MBS premium amortization expense (including$0.7 million related to U.S, agencies MBS acquired in the BSPR transaction) affected by the low interest rate environment. This variance was partially offset by an$859.1 million increase in the average balance of total investment securities.
Purchases of U.S. agencies MBS and callable debentures during the last two quarters contributed to an increase of approximately$520.1 million in the average balance of investment securities, which resulted in an increase in interest income of approximately$1.2 million . Purchases of U.S. agencies callable debentures and MBS during the third quarter amounting to$850.7 million carries an average yield of0.90% , which is a lower yield compared to yields on securities that were called prior to maturity and MBS prepayments. This, together with the low yields on the investment securities portfolio acquired from BSPR had an adverse effect in the net interest margin for the third quarter.
The BSPR acquisition added$308 million of U.S. agencies MBS,$803 million of U.S. Treasury Notes, and$56 million of Puerto Rico municipal bonds at acquisition date. This accounted for$339.2 million of the total increase in the average balance of investment securities and contributed$0.4 million in interest income, net of a$1.4 million amortization of the premium resulting from the new amortized cost basis of securities acquired from BSPR. As a result of the purchase accounting requirements, the acquired U.S. Treasury Notes were booked at a yield of0.15% , therefore, in the latter part of the third quarter, the Corporation sold all the U.S. Treasury Notes acquired from BSPR and reinvested the proceeds in U.S. agency securities at an approximate average yield of0.94% . The average yield of the U.S. agencies MBS acquired from BSPR was0.42% for the month of September.
Net interest margin was
The acquisition of BSPR had a one basis point dilutive impact on the net interest margin in the third quarter of 2020, primarily due to the above-mentioned low yields on acquired investment securities and interest-bearing cash balances that more than offset the benefit of higher yields on acquired loans and lower average cost of assumed deposits as compared to the legacy portfolios. The results for the third quarter include the effect of acquisition marks and related accretion for the BSPR acquisition. Net interest income benefited from
The third quarter results also include the effect of SBA PPP loans. Interest income includes
NON-INTEREST INCOME
The following table sets forth information concerning non-interest income during the periods indicated:
| Quarter Ended | |||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||
| (In thousands) |
|
2020 |
|
2020 |
|
|
2020 |
|
2019 |
|
2019 |
|
|||||
| Service charges on deposit accounts | $ |
5,848 |
$ |
4,475 |
|
$ |
5,957 |
$ |
6,205 |
$ |
6,108 |
|
|||||
| Mortgage banking activities |
|
7,099 |
|
3,686 |
|
|
3,788 |
|
4,640 |
|
4,396 |
|
|||||
| Net gain (loss) on investments and impairments |
|
5,288 |
|
(155 |
) |
|
8,247 |
|
- |
|
(497 |
) |
|||||
| Gain on early extinguishment of debt |
|
94 |
|
- |
|
|
- |
|
- |
|
- |
|
|||||
| Other operating income |
|
11,605 |
|
12,886 |
|
|
12,208 |
|
13,560 |
|
11,394 |
|
|||||
| Non-interest income | $ |
29,934 |
$ |
20,892 |
|
$ |
30,200 |
$ |
24,405 |
$ |
21,401 |
|
|||||
Non-interest income amounted to
-
The
$5.3 million gain on sales of approximately$116.6 million of available-for-sale U.S. agencies MBS and$803.3 million of available-for-sale U.S. Treasury Notes. The Corporation realized a$5.1 million gain on the U.S. agencies MBS sold, which carried an increased prepayment risk given the low market interest rate environment, and a$0.2 million gain on the sale of the U.S. Treasury Notes that were acquired in the BSPR transaction. -
A
$3.4 million increase in revenues from mortgage banking activities, driven by a$4.5 million increase in realized gains on sales of residential mortgage loans in the secondary market, driven by both a higher volume of conforming loan originations and sales and higher gain margins, and a$0.6 million increase in servicing fee income, partially offset by a$0.7 million decrease related to the net change in mark-to-market gains and losses from both interest rate lock commitments and To-Be-Announced (“TBA”) MBS forward contracts, and a$0.7 million increase in the servicing assets amortization expense. Total loans sold in the secondary market to U.S. government-sponsored agencies during the third quarter of 2020 amounted to$161.8 million , with a related net gain of$5.9 million (net of realized losses of$0.4 million on TBA hedges), compared to total loans sold in the secondary market during the second quarter of 2020 of$63.8 million , with a related net gain of$1.4 million (net of realized losses of$1.1 million on TBA hedges). Revenues from mortgage banking activities from BSPR included in the third quarter financial results amounted to approximately$0.1 million . The BSPR acquisition added$1.0 billion to the residential mortgage loan servicing portfolio. -
A
$2.8 million increase in transactional fee income from credit and debit cards, automated teller machines (ATMs), and Point-of-Sale (POS) and merchant-related activity, primarily reflecting higher sales volume associated with the gradual reopening of businesses and resumption of economic activity. Approximately$0.3 million of the increase is related to transactional fee income generated by the BSPR operations from the date of acquisition to the end of the third quarter of 2020. These amounts are included as part of “Other operating income” in the table above. -
A
$1.4 million increase in service charges on deposits, including an increase of$1.1 million related to deposit accounts acquired from BSPR of which$0.6 million relates to cash management fee income. The remaining increase was primarily related to a higher number of cash management fee transactions in the legacy portfolio as a result of increased customer activity since the gradual reopening of business activities after the COVID-19 related lockdowns and quarantines. -
A
$0.4 million increase in fees and commissions from other banking services, such as mail and cable transmission, official checks, safe deposits and insurance referrals, among others, reflecting increased customer activity. These fees are included as part of “Other operating income” in the table above. -
A
$0.2 million gain on the sale of a land lot during the third quarter of 2020, included as part of “Other operating income” in the table above.
Partially offset by:
-
The
$5.0 million benefit recorded in the second quarter of 2020 resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017, included as part of “Other operating income” in the table above.
NON-INTEREST EXPENSES
The following table sets forth information concerning non-interest expenses during the periods indicated:
| Quarter Ended | |||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||
| (In thousands) | 2020 |
2020 |
2020 |
2019 |
2019 |
||||||||||
| Employees' compensation and benefits | $ |
43,063 |
$ |
39,532 |
$ |
42,859 |
$ |
40,856 |
$ |
41,409 |
|||||
| Occupancy and equipment |
|
19,064 |
|
16,376 |
|
15,127 |
|
16,151 |
|
15,129 |
|||||
| Deposit insurance premium |
|
1,630 |
|
1,436 |
|
1,522 |
|
1,674 |
|
1,465 |
|||||
| Other insurance and supervisory fees |
|
1,389 |
|
1,129 |
|
1,087 |
|
919 |
|
960 |
|||||
| Taxes, other than income taxes |
|
4,510 |
|
3,577 |
|
3,880 |
|
3,864 |
|
3,904 |
|||||
| Professional fees: | |||||||||||||||
| Collections, appraisals and other credit-related fees |
|
1,262 |
|
1,387 |
|
1,696 |
|
2,345 |
|
1,797 |
|||||
| Outsourcing technology services |
|
6,949 |
|
7,672 |
|
6,829 |
|
6,036 |
|
6,206 |
|||||
| Other professional fees |
|
3,352 |
|
2,909 |
|
3,268 |
|
3,652 |
|
3,872 |
|||||
| Credit and debit card processing expenses |
|
4,859 |
|
3,938 |
|
3,950 |
|
3,734 |
|
4,764 |
|||||
| Business promotion |
|
3,046 |
|
2,314 |
|
3,622 |
|
4,060 |
|
4,004 |
|||||
| Communications |
|
2,246 |
|
1,852 |
|
1,877 |
|
1,591 |
|
1,834 |
|||||
| Net loss on other real estate owned ("OREO") operations |
|
1,019 |
|
811 |
|
1,188 |
|
3,280 |
|
2,578 |
|||||
| Merger and restructuring costs |
|
10,441 |
|
2,902 |
|
845 |
|
10,850 |
|
592 |
|||||
| Other |
|
4,678 |
|
3,951 |
|
4,434 |
|
3,302 |
|
4,319 |
|||||
| Total | $ |
107,508 |
$ |
89,786 |
$ |
92,184 |
$ |
102,314 |
$ |
92,833 |
|||||
Non-interest expenses amounted to
-
Merger and restructuring costs associated with the acquisition of BSPR of
$10.4 million for the third quarter of 2020, compared to$2.9 million for the second quarter of 2020. The increase was primarily related to higher legal and financial consultant fees as well as expenses incurred in integration efforts during the third quarter. -
COVID-19 pandemic-related expenses of
$1.0 million for the third quarter of 2020, compared to$3.0 million for the second quarter of 2020. COVID-19 pandemic-related expenses for the third quarter of 2020, primarily consist of$0.8 million of expenses associated with cleaning and security protocols, included as part of “Occupancy and equipment” in the table above, compared to$0.9 million in the second quarter of 2020. For the second quarter of 2020, COVID-19 pandemic-related expenses also include$1.7 million incurred in employee-related expenses primarily related to bonuses paid to branch personnel and other essential employees for working during the pandemic, as well as expenses for the administration of COVID-19 tests and purchases of personal protective equipment, both recorded as part of “Employees’ compensation and benefits” in the table above.
On a non-GAAP basis, adjusted non-interest expenses, excluding the effect of the Special Items mentioned above, amounted to
-
A
$5.2 million increase in adjusted employees’ compensation and benefits expenses, driven by a$3.0 million increase related to personnel retained from the acquisition of BSPR and a$1.6 million decrease in deferred loan origination costs primarily in connection with a lower amount of SBA PPP loans originated during the third quarter. -
A
$2.8 million increase in adjusted occupancy and equipment costs, including approximately$2.7 million incremental expenses related to the acquired operations. -
A
$1.0 million increase in adjusted business promotion expenses, driven by a$0.6 million increase in direct and digital marketing expenses and a$0.3 million increase in the cost of credit and debit card reward programs. Approximately$0.5 million of the total increase in business promotion expenses is related to incremental expenses of the acquired operations. -
A
$0.9 million increase in adjusted taxes, other than income taxes, primarily related to a$0.5 million increase in business to business sales and use tax expenses due to the effect in the second quarter of legislation that provided for a temporary exemption of the4% tax associated with business to business services up to June 30, 2020, and approximately$0.5 million incremental expenses related to the acquired operations, primarily municipal license taxes and personal property taxes. -
A
$0.9 million increase in credit and debit card processing expenses related to higher transactions volume, including a$0.4 million incremental expense related to the acquired operations. -
A
$0.7 million increase in “Other” in the table above including incremental expenses of approximately$1.1 million related to the acquired operations, partially offset by reductions of$0.3 million in printing expenses and$0.2 million in labor-related legal reserves. Incremental expenses include$0.8 million related to the amortization of core deposit and purchased credit card relationship intangible assets recorded in connection with the acquisition of BSPR. -
A
$0.4 million increase in adjusted communications-related expenses, primarily due to higher telephone and mailing expenses. Approximately$0.2 million is related to incremental expenses of the acquired operations.
Partially offset by:
-
A
$0.4 million decrease in adjusted professional service fees, primarily due to a$0.7 million decrease in outsourced technology fees, driven by lower costs incurred in connection with the platform used for the origination of SBA PPP loans, partially offset by a$0.3 million increase in consulting fees. Incremental professional service fees related to acquired operations amounted to$1.8 million , representing temporary technology processing costs of the acquired operations while system conversions is completed.
The adjusted financial metrics presented above are non-GAAP financial measures. See Basis of Presentation for additional information and the reconciliation of total non-interest expenses and certain non-interest expenses components to adjusted total non-interest expenses and certain adjusted non-interest expense components.
INCOME TAXES
The Corporation recorded an income tax benefit of
The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, decreased to
CREDIT QUALITY
Non-Performing Assets
| (Dollars in thousands) | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
|
2020 |
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2019 |
|
|||||||
| Nonaccrual loans held for investment: | |||||||||||||||||||||
| Residential mortgage | $ |
122,797 |
|
$ |
122,249 |
|
$ |
122,903 |
|
$ |
121,408 |
|
$ |
127,040 |
|
||||||
| Commercial mortgage |
|
29,651 |
|
|
34,109 |
|
|
35,953 |
|
|
40,076 |
|
|
42,525 |
|
||||||
| Commercial and Industrial |
|
20,882 |
|
|
19,995 |
|
|
19,734 |
|
|
18,773 |
|
|
20,725 |
|
||||||
| Construction |
|
13,090 |
|
|
9,574 |
|
|
9,663 |
|
|
9,782 |
|
|
6,358 |
|
||||||
| Consumer and Finance leases |
|
14,870 |
|
|
18,047 |
|
|
24,042 |
|
|
20,629 |
|
|
19,579 |
|
||||||
| Total nonaccrual loans held for investment |
|
201,290 |
|
|
203,974 |
|
|
212,295 |
|
|
210,668 |
|
|
216,227 |
|
||||||
| OREO |
|
89,049 |
|
|
96,319 |
|
|
99,674 |
|
|
101,626 |
|
|
103,033 |
|
||||||
| Other repossessed property |
|
3,006 |
|
|
3,554 |
|
|
5,832 |
|
|
5,115 |
|
|
5,932 |
|
||||||
| Total non-performing assets, excluding nonaccrual loans held for sale | $ |
293,345 |
|
$ |
303,847 |
|
$ |
317,801 |
|
$ |
317,409 |
|
$ |
325,192 |
|
||||||
| Nonaccrual loans held for sale |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
6,906 |
|
||||||
| Total non-performing assets, including nonaccrual loans held for sale (1) | $ |
293,345 |
|
$ |
303,847 |
|
$ |
317,801 |
|
$ |
317,409 |
|
$ |
332,098 |
|
||||||
| Past-due loans 90 days and still accruing (2) | $ |
160,066 |
|
$ |
164,519 |
|
$ |
132,058 |
|
$ |
135,490 |
|
$ |
144,787 |
|
||||||
| Nonaccrual loans held for investment to total loans held for investment |
|
1.70 |
% |
|
2.18 |
% |
|
2.35 |
% |
|
2.34 |
% |
|
2.41 |
% |
||||||
| Nonaccrual loans to total loans |
|
1.69 |
% |
|
2.17 |
% |
|
2.35 |
% |
|
2.33 |
% |
|
2.48 |
% |
||||||
| Non-performing assets, excluding nonaccrual loans held for sale, to total assets, excluding nonaccrual loans held for sale |
|
1.57 |
% |
|
2.16 |
% |
|
2.44 |
% |
|
2.52 |
% |
|
2.60 |
% |
||||||
| Non-performing assets to total assets |
|
1.57 |
% |
|
2.16 |
% |
|
2.44 |
% |
|
2.52 |
% |
|
2.65 |
% |
||||||
(1) |
Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as "units of account" both at the time of adoption of ASC 326 and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of ASC 326 and will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The amortized cost of such loans as of September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019 amounted to |
||||||||||||||||||||
(2) |
These include loans rebooked, which were previously pooled into GNMA securities amounting to |
||||||||||||||||||||
Variances in credit quality metrics:
-
Total non-performing assets decreased by
$10.5 million to$293.3 million as of September 30, 2020, compared to$303.8 million as of June 30, 2020. Total nonaccrual loans decreased by$2.7 million to$201.3 million as of September 30, 2020, compared to$204.0 million as of June 30, 2020.
The decrease in non-performing assets consisted of:
- A$7.3 million decrease in the OREO portfolio balance. The decrease was driven by sales of$6.9 million , primarily residential OREO properties in the Puerto Rico region, and approximately$1.5 million of fair value and other adjustments that reduced the OREO carrying value, partially offset by additions of$1.1 million .
- A$3.2 million decrease in nonaccrual consumer loans, primarily auto loans and finance leases, driven by charge-offs and collections recorded in the third quarter, partially offset by inflows of$8.4 million .
- A$0.5 million decrease in non-real estate repossessed assets, primarily repossessed automobiles.
- A$0.1 million decrease in nonaccrual commercial and construction loans, primarily due to a$3.1 million charge-off taken on a nonaccrual commercial mortgage loan in the Puerto Rico region and collections recorded in the third quarter, partially offset by the inflow of a$3.5 million construction loan in the Puerto Rico region.
- A$0.5 million increase in nonaccrual residential mortgage loans, reflecting inflows of$5.4 million primarily resulting from the failure of certain borrowers that were delinquent prior to the COVID-19 payment moratorium relief to resume monthly payments after the end of their payment moratorium period. The increase related to inflows was partially offset by collections, charge-offs, and loans brought current or with a sustained performance period and restored to accrual status during the third quarter. -
Inflows to nonaccrual loans held for investment were
$18.4 million , a$7.7 million increase compared to inflows of$10.7 million in the second quarter of 2020. Inflows to nonaccrual residential mortgage loans were$5.4 million in the third quarter of 2020, an increase of$2.4 million compared to inflows of$3.0 million in the second quarter of 2020. Inflows to nonaccrual consumer loans were$8.4 million , an increase of$1.3 million compared to inflows of$7.1 million in the second quarter of 2020. Inflows to nonaccrual commercial and construction loans were$4.6 million in the third quarter of 2020, an increase of$3.9 million compared to inflows of$0.7 million in the second quarter of 2020, driven by the aforementioned inflow of a$3.5 million construction loan in the Puerto Rico region. See Early Delinquency, Payment Deferral Programs, and SBA PPP Loans below for additional information. -
Adversely classified commercial and construction loans increased by
$39.8 million to$157.3 million as of September 30, 2020, primarily related to the downgrade of two commercial relationships in the Florida region engaged in the transportation industry totaling$38.8 million . -
Total Troubled Debt Restructured (“TDR”) loans held for investment were
$488.6 million as of September 30, 2020, down$7.6 million from June 30, 2020. Approximately$399.7 million of total TDR loans held for investment were in accrual status as of September 30, 2020. These figures exclude$58.8 million of TDR residential mortgage loans guaranteed by the U.S. federal government (i.e., Federal Housing Administration and Veterans Administration loans).
Early Delinquency, Payment Deferral Programs, and SBA PPP Loans
Total loans in early delinquency (i.e., 30-89 days past due loans, as defined in regulatory report instructions) amounted to
-
Residential mortgage loans in early delinquency increased by
$4.7 million to$44.5 million as of September 30, 2020, and consumer loans in early delinquency increased by$0.1 million to$35.7 million as of September 30, 2020. The early delinquency residential mortgage loans as of September 30, 2020 reflect$4.0 million and$2.9 million of 30-89 past due residential mortgage and consumer loans, respectively, resulting from the BSPR acquisition. -
Commercial and construction loans in early delinquency increased in the third quarter by
$13.9 million to$30.1 million as of September 30, 2020, including as a result of the migration of a commercial mortgage loan that is delinquent for over 30 days with respect to a$5.0 million final balloon payment but with respect to which the Corporation continues to receive from the borrower interest and principal payments. In addition, there was an increase of$7.2 million related to loans acquired in the BSPR transaction, primarily a$6.1 million matured commercial and industrial loan.
In working with borrowers affected by the COVID-19 pandemic, the Corporation has agreed to let consumer borrowers (i.e., borrowers under residential mortgages, personal loans, auto loans, finance leases and small loans) that were current in their payments or no more than 2 payments in arrears (not having exceeded 89 days past due as of March 16, 2020) to defer payments on their loans in some cases for up to six months but not beyond September 30, 2020, with few exceptions. In the case of credit cards and individual lines of credit, the borrowers were required to be current or less than 29 days past due in their payments as of March 16, 2020 to qualify for the payment deferral program providing for payment deferrals in some cases up to August 31, 2020. For both consumer and residential mortgage loans subject to the deferral programs, each borrower is required to begin making their regularly scheduled loan payment at the end of the deferral period and the deferred amounts were moved to the end of the loan. The payment deferral programs were applied prospectively beginning, in some instances, with the scheduled contractual payment due in March. For commercial loans, any request for payment deferral is analyzed on a case by case basis. Most of these deferred repayment arrangements have been done under the provisions of the Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act of 2020”) or the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. In Puerto Rico, the moratoriums for consumer and residential mortgage products were mandated by local law.
As of September 30, 2020, the Corporation had under deferred repayment arrangements 25,173 loans, totaling
| Payment Deferral Programs | ||||||
| (Dollars in thousands) | ||||||
| As of September 30, 2020 | ||||||
| Count | Balance | |||||
| Residential mortgage loans | 3,227 |
$ |
511,878 |
|||
| Commercial and Construction loans | 196 |
|
540,772 |
|||
| Consumer loans | 21,750 |
|
168,679 |
|||
| Loans held for investment | 25,173 |
$ |
1,221,329 |
|||
| Loans held for sale | - |
|
- |
|||
| Total loans | 25,173 |
$ |
1,221,329 |
|||
As of October 21, 2020, approximately
As a certified SBA lender, the Corporation is participating in the SBA Paycheck Protection Program (PPP) to help provide loans to the Corporation’s small business customers to provide them with additional working capital. During the third quarter of 2020, the Corporation originated 636 loans under this program, totaling
Allowance for Credit Losses
Effective January 1, 2020, the Corporation adopted the CECL impairment model required by the Accounting Standards Codification Topic 326 (“ASC 326”). The adoption of this standard replaced the incurred loss methodology with a methodology, which is referred to as CECL, to estimate the allowance for credit losses (“ACL”) for the remaining estimated life of a financial asset carried at amortized cost and certain off-balance sheet credit exposures considering, among other things, expected future changes in macroeconomic conditions. ASC 326 does not require restatement of comparative period financial statements; as such, results for the first nine months of 2020 reflect the adoption of ASC 326, while prior periods reflect results under the previously required incurred loss methodology.
The following table summarizes the activity of the ACL for on-balance sheet and off-balance sheet exposures during the third quarter and nine-month period ended September 30, 2020:
| Quarter Ended September 30, 2020 | ||||||||||||||||||||||
| Loans and | Unfunded Loan | Held-to-Maturity | Availabe-for-Sale | |||||||||||||||||||
| Allowance for Credit Losses | Finance Leases | Commitments | Debt Securities | Debt Securities | Total | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||
| Allowance for credit losses, beginning balance | $ |
319,297 |
|
$ |
7,084 |
|
$ |
9,268 |
|
$ |
1,631 |
|
$ |
337,280 |
|
|||||||
| Provision for credit losses |
|
48,078 |
|
|
(803 |
) |
|
(361 |
) |
|
- |
|
|
46,914 |
|
|||||||
| Initial allowance on PCD assets |
|
28,744 |
|
|
- |
|
|
1,269 |
|
|
- |
|
|
30,013 |
|
|||||||
| Net charge-offs |
|
(11,401 |
) |
|
- |
|
|
- |
|
|
(245 |
) |
|
(11,646 |
) |
|||||||
| Allowance for credit losses, end of period | $ |
384,718 |
|
$ |
6,281 |
|
(1 |
) |
$ |
10,176 |
|
$ |
1,386 |
|
$ |
402,561 |
|
|||||
| (1) Included in accounts payable and other liabilities. | ||||||||||||||||||||||
| Nine-Month Period Ended September 30, 2020 | ||||||||||||||||||||||
| Loans and | Unfunded Loan | Held-to-Maturity | Availabe-for-Sale | |||||||||||||||||||
| Allowance for Credit Losses | Finance Leases | Commitments | Debt Securities | Debt Securities | Total | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||
| Allowance for credit losses, beginning balance prior to adoption of CECL | $ |
155,139 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
155,139 |
|
|||||||
| Impact of adopting CECL (cumulative transition adjustment) (2) |
|
81,165 |
|
|
3,922 |
|
|
8,134 |
|
|
- |
|
|
93,221 |
|
|||||||
| Allowance for credit losses, January 1, 2020 |
|
236,304 |
|
|
3,922 |
|
|
8,134 |
|
|
- |
|
|
248,360 |
|
|||||||
| Provision for credit losses |
|
158,531 |
|
|
2,359 |
|
|
773 |
|
|
1,631 |
|
|
163,294 |
|
|||||||
| Initial allowance on PCD assets |
|
28,744 |
|
|
- |
|
|
1,269 |
|
|
- |
|
|
30,013 |
|
|||||||
| Net charge-offs |
|
(38,861 |
) |
|
- |
|
|
- |
|
|
(245 |
) |
|
(39,106 |
) |
|||||||
| Allowance for credit losses, end of period | $ |
384,718 |
|
$ |
6,281 |
|
(1 |
) |
$ |
10,176 |
|
$ |
1,386 |
|
$ |
402,561 |
|
|||||
| (1) Included in accounts payable and other liabilities. | ||||||||||||||||||||||
| (2) Cumulative effect judgement recorded on January 1, 2020. | ||||||||||||||||||||||
The main variances of the total ACL by main categories follow:
Allowance for Credit Losses for Loans and Finance Leases
The following table sets forth information concerning the allowance for credit losses for loans and finance leases during the periods indicated:
| Quarter Ended | |||||||||||||||||||||
| (Dollars in thousands) | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
|
2020 |
|
2020 |
|
2020 |
|
|
2019 |
|
|
2019 |
|
|||||||||
| Allowance for credit losses, beginning balance | $ |
319,297 |
|
$ |
292,774 |
|
$ |
155,139 |
|
$ |
165,575 |
|
$ |
172,011 |
|
||||||
| Impact of adopting ASC 326 |
|
- |
|
|
- |
|
|
81,165 |
|
|
- |
|
|
- |
|
||||||
| Allowance for credit losses on loans and finance leases, beginning balance after CECL adoption |
|
319,297 |
|
|
292,774 |
|
|
236,304 |
|
|
165,575 |
|
|
172,011 |
|
||||||
| Provision for credit losses |
|
48,078 |
|
|
36,408 |
|
|
74,045 |
|
|
8,473 |
|
|
7,398 |
|
||||||
| Initial allowance on PCD loans |
|
28,744 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
||||||
| Net (charge-offs) recoveries of loans: | |||||||||||||||||||||
| Residential mortgage |
|
(2,283 |
) |
|
(1,794 |
) |
|
(3,779 |
) |
|
(5,930 |
) |
|
(4,414 |
) |
||||||
| Commercial mortgage |
|
(3,104 |
) |
|
25 |
|
|
(84 |
) |
|
(103 |
) |
|
(717 |
) |
||||||
| Commercial and Industrial |
|
(70 |
) |
|
5 |
|
|
(10 |
) |
|
208 |
|
|
1,439 |
|
||||||
| Construction |
|
36 |
|
|
(54 |
) |
|
24 |
|
|
(8 |
) |
|
211 |
|
||||||
| Consumer and finance leases |
|
(5,980 |
) |
|
(8,067 |
) |
|
(13,726 |
) |
|
(13,076 |
) |
|
(10,353 |
) |
||||||
| Net charge-offs |
|
(11,401 |
) |
|
(9,885 |
) |
|
(17,575 |
) |
|
(18,909 |
) |
|
(13,834 |
) |
||||||
| Allowance for credit losses on loans and finance leases, end of period | $ |
384,718 |
|
$ |
319,297 |
|
$ |
292,774 |
|
$ |
155,139 |
|
$ |
165,575 |
|
||||||
| Allowance for credit losses on loans and finance leases to period end total loans held for investment |
|
3.25 |
% |
|
3.41 |
% |
|
3.24 |
% |
|
1.72 |
% |
|
1.85 |
% |
||||||
| Net charge-offs (annualized) to average loans outstanding during the period |
|
0.45 |
% |
|
0.43 |
% |
|
0.78 |
% |
|
0.84 |
% |
|
0.61 |
% |
||||||
| Provision for credit losses on loans and finance leases to net charge-offs during the period | 4.22 |
x |
3.68 |
x |
4.21 |
x |
0.45 |
x |
0.53 |
x |
|||||||||||
-
As of September 30, 2020, the ACL for loans and finance leases was
$384.7 million , up$65.4 million from June 30, 2020. The increase was primarily due to the initial ACL required with respect to loans from the acquisition of BSPR. The CECL accounting standard requires the Corporation to provide for an ACL for non-PCD loans at the time of acquisition through a direct charge to earnings, in addition to any fair value adjustments on these loans. Accordingly, the Corporation recorded approximately$37.5 million in provision for credit losses for non-PCD loans acquired in the BSPR acquisition. In addition, for purchased credit deteriorated (“PCD”) loans totaling$785 million , the Corporation established a$28.7 million ACL representing the fair value credit marks on these loans. The initial ACL for PCD loans is not established through a charge to the provision for credit losses, but, rather, through an initial adjustment to the loan’s amortized cost. -
The provision for credit losses on loans and finance leases was
$48.1 million for the third quarter of 2020, up$11.7 million from$36.4 million in the second quarter of 2020. The increase reflects the effect of the aforementioned charge of$37.5 million recorded in the third quarter with respect to non-PCD loans acquired in the BSPR transaction, partially offset by lower reserve builds for the legacy loan portfolio in the third quarter. The following table shows the breakdown of the provision for credit losses by portfolio for the third and second quarters of 2020:
| Quarter Ended September 30, 2020 | |||||||||||||||||
| (Dollars in thousands) | Residential Mortgage Loans |
Commercial Loans (including Commercial Mortgage, C&I, and Construction) |
Consumer and Finance Leases |
Total | |||||||||||||
| Provision for credit losses on loans and finance leases (legacy operations) | $ |
(3,730 |
) |
$ |
11,147 |
$ |
3,167 |
$ |
10,584 |
||||||||
| Day 1 reserves required for acquired non-PCD loans |
|
13,605 |
|
|
13,769 |
|
10,120 |
|
37,494 |
||||||||
| Provision for credit losses on loans and finance leases | $ |
9,875 |
|
$ |
24,916 |
$ |
13,287 |
$ |
48,078 |
||||||||
| Quarter Ended June 30, 2020 | |||||||||||||||||
| (Dollars in thousands) | Residential Mortgage Loans |
Commercial Loans (including Commercial Mortgage, C&I, and Construction) |
Consumer and Finance Leases |
Total | |||||||||||||
| Provision for credit losses on loans and finance leases | $ |
6,162 |
|
$ |
18,035 |
$ |
12,211 |
$ |
36,408 |
||||||||
- Provision for credit losses for the legacy commercial and construction loans portfolio of
- Release of credit losses for the legacy residential mortgage loans portfolio of
- Provision for credit losses for the legacy consumer loans and finance leases portfolio of
-
The ratio of the ACL for loans and finance leases to total loans held for investment was
3.25% as of September 30, 2020, compared to3.41% as of June 30, 2020. No ACL was allocated to SBA PPP loans as they are fully guaranteed. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for loans and finance leases to adjusted total loans held for investment was3.38% as of September 30, 2020 compared to3.55% as of June 30, 2020. The ratio of the total allowance for credit losses for loans and finance leases to nonaccrual loans held for investment was191.15% as of September 30, 2020, compared to156.54% as of June 30, 2020. The total ACL established for loans acquired in the BSPR acquisition was$66.2 million , or2.68% of the total loans held for investment acquired from BSPR (excluding SBA PPP loans), as of September 30, 2020.
The following table sets forth information concerning the composition of the Corporation’s ACL for loans and finance leases as of September 30, 2020 and June 30, 2020 by loan category:
| (Dollars in thousands) | Residential Mortgage Loans |
Commercial Loans (including Commercial Mortgage, C&I, and Construction) |
Consumer and Finance Leases |
Total | |||
| As of September 30, 2020 | |||||||
| Total loans held for investment: | |||||||
| Amortized cost | $ 3,636,713 |
$ 5,638,476 |
$ 2,572,086 |
$ 11,847,275 |
|||
| Allowance for credit losses on loans | 131,781 |
128,876 |
124,061 |
384,718 |
|||
| Allowance for credit losses on loans to amortized cost |
|
|
|
|
|||
| As of June 30, 2020 | |||||||
| Total loans held for investment: | |||||||
| Amortized cost | $ 2,890,301 |
$ 4,180,672 |
$ 2,295,243 |
$ 9,366,216 |
|||
| Allowance for credit losses on loans | 111,450 |
95,545 |
112,302 |
319,297 |
|||
| Allowance for credit losses on loans to amortized cost |
|
|
|
|
|||
Net Charge-Offs
The following table presents ratios of annualized net charge-offs to average loans held-in-portfolio:
| Quarter Ended | ||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||
2020 |
2020 |
2020 |
2019 |
2019 |
||||||
| Residential mortgage |
|
|
|
|
|
|||||
| Commercial mortgage |
|
- |
|
|
|
|||||
| Commercial and Industrial |
|
|
|
- |
- |
|||||
| Construction |
- |
|
- |
|
- |
|||||
| Consumer and finance leases |
|
|
|
|
|
|||||
| Total loans |
|
|
|
|
|
|||||
The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.
Net charge-offs were
-
A
$3.2 million increase in commercial and construction loan net charge-offs, primarily due to the$3.1 million charge-off taken on a commercial mortgage loan in the Puerto Rico region. -
A
$2.1 million decrease in consumer loan net charge-offs, primarily reflecting decreases in charge-offs taken on small personal loans and credit cards. -
A
$0.4 million increase in residential mortgage loan net charge-offs, primarily related to charge-offs taken on delinquent loans repurchased from GNMA pools.
Allowance for Credit Losses for Unfunded Loan Commitments
The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of September 30, 2020, the ACL for off-balance sheet credit exposures was
Allowance for Credit Losses for Held-to-Maturity Debt Securities
As of September 30, 2020, the held-to-maturity securities portfolio consisted of Puerto Rico municipal bonds. As of September 30, 2020, the ACL for held-to-maturity debt securities was
Allowance for Credit Losses for Available-for-Sale Debt Securities
As of September 30, 2020, the ACL for available-for-sale debt securities was
STATEMENT OF FINANCIAL CONDITION
Total assets were approximately
The following variances within the main components of total assets are noted:
-
A
$2.5 billion increase in total loans. The increase reflects primarily$2.6 billion of loans (including$77.6 million of SBA PPP loans) resulting from the BSPR acquisition in the Puerto Rico region, partially offset by a$60.5 million decrease in the legacy portfolio. Loans held for investment include a net purchase accounting discount of$66.9 million as of September 30, 2020 related to the acquisition of BSPR. The decrease of$60.5 million in the legacy portfolio during the third quarter consisted of reductions of$60.3 million in the Puerto Rico region and$3.4 million in the Virgin Islands region, partially offset by a$3.2 million increase in the Florida region. On a portfolio basis, the decrease of the legacy portfolio consisted of reductions of$65.8 million in residential mortgage loans and$60.7 million in commercial and construction loans (net of a$16.2 million increase in SBA PPP loans), partially offset by a$66.0 million increase in consumer loans.
The following table provides additional information about the decrease/increase on loans:
| (In thousands) | Change Composition | ||||||||||||||||||||||
| September 30, | June 30, | Balance | Organic | Organic | |||||||||||||||||||
2020 |
2020 |
Change | Acquired | Growth/(Loss) | Growth/(Loss) % | ||||||||||||||||||
| Residential mortgage loans | $ |
3,636,713 |
$ |
2,890,301 |
$ |
746,412 |
$ |
816,608 |
$ |
(70,196 |
) |
-2.43 |
% |
||||||||||
| Commercial loans: | |||||||||||||||||||||||
| Construction loans |
|
191,356 |
|
177,777 |
|
13,579 |
|
- |
|
13,579 |
|
7.64 |
% |
||||||||||
| Commercial mortgage loans |
|
2,220,277 |
|
1,455,083 |
|
765,194 |
|
762,663 |
|
2,531 |
|
0.17 |
% |
||||||||||
| Commercial and Industrial loans |
|
3,226,843 |
|
2,547,812 |
|
679,031 |
|
755,852 |
|
(76,821 |
) |
-3.02 |
% |
||||||||||
| Commercial loans |
|
5,638,476 |
|
4,180,672 |
|
1,457,804 |
|
1,518,515 |
|
(60,711 |
) |
-1.45 |
% |
||||||||||
| Finance leases |
|
458,381 |
|
438,851 |
|
19,530 |
|
- |
|
19,530 |
|
4.45 |
% |
||||||||||
|
- |
||||||||||||||||||||||
| Consumer loans |
|
2,113,705 |
|
1,856,392 |
|
257,313 |
|
210,860 |
|
46,453 |
|
2.50 |
% |
||||||||||
| Loans held for investment |
|
11,847,275 |
|
9,366,216 |
|
2,481,059 |
|
2,545,983 |
|
(64,924 |
) |
-0.69 |
% |
||||||||||
| Loans held for sale |
|
48,670 |
|
38,986 |
|
9,684 |
|
5,272 |
|
4,412 |
|
11.32 |
% |
||||||||||
| Total loans | $ |
11,895,945 |
$ |
9,405,202 |
$ |
2,490,743 |
$ |
2,551,255 |
$ |
(60,512 |
) |
-0.64 |
% |
||||||||||
The decrease in the legacy loan portfolio related to the Puerto Rico region consisted of a decrease of
The decrease in total loans in the Virgin Islands region consisted of a
The increase in total loans in the Florida region consisted of a
Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity), amounted to
Total loan originations in the Puerto Rico region amounted to
Total loan originations in the Virgin Islands region amounted to
Total loan originations in the Florida region amounted to
-
A
$624.2 million increase in investment securities, mainly driven by purchases of$850.7 million of U.S. agencies MBS and callable debentures during the third quarter, and the acquisition of BSPR, which added$294.7 million of U.S. agencies residential pass-through MBS,$56.9 million of Puerto Rico municipal bonds accounted for as held-to-maturity investment securities, and$3.0 million of FHLB stock as of September 30, 2020. These variances were partially offset by approximately$205.9 million of U.S. agencies bonds that were called prior to maturity during the third quarter, prepayments of$179.9 million of U.S. agencies residential pass-through MBS, and the sales of$116.6 million of U.S. agencies MBS. The sales of$116.6 million have settlement dates in October; thus, as of September 30, 2020, the decrease in the investment securities portfolio was offset by a corresponding increase in accounts receivable on unsettled investment sales included as part of Other assets in the consolidated statement of financial condition.
-
A
$65.4 million increase in the ACL for loans and finance leases, reflecting a provision of$48.1 million and an initial ACL of$28.7 million with respect to PCD loans from the acquisition of BSPR. The provision was primarily a result of the BSPR acquisition and reserves build for the legacy commercial and construction loan portfolio.
-
A
$1.2 billion increase in cash and cash equivalents attributable, among other things, to proceeds from sales of U.S. Treasury Notes acquired from BSPR and the$406.6 million increase related to the excess of the cash acquired in the BSPR acquisition over the cash consideration paid at closing.
-
Core deposits and other intangible assets of
$38.5 million as of September 30, 2020 related to the acquisition of BSPR.
-
A
$41.4 million increase in net deferred tax assets, primarily related to the acquisition of BSPR.
Total liabilities were approximately
The increase in total liabilities was mainly due to:
-
A
$3.7 billion increase in total deposits, excluding brokered deposits and government deposits, consisting of a growth of$3.7 billion in the Puerto Rico region, partially offset by decreases of$30.3 million and$14.5 million in the Florida and Virgin Islands regions, respectively. The increase in the Puerto Rico region reflects primarily$3.4 billion of deposits (net of brokered and government deposits) resulting from the BSPR acquisition. Organic deposit growth was$216.4 million during the third quarter, primarily demand deposits, which grew by6% , or$250.4 million .
-
An
$899.3 million increase in government deposits, reflecting increases of$782.9 million ,$115.8 million , and$0.7 million in the Puerto Rico, Virgin Islands, and Florida regions, respectively. The increase in the Puerto Rico region during the third quarter reflects primarily$670.5 million of government deposits resulting from the BSPR acquisition. The remaining$228.8 million of organic growth reflects an increase in balances of transactional accounts of certain municipalities in Puerto Rico, related to the collection of municipal license taxes, and higher balances on transactional accounts of the central government in the U.S. Virgin Islands driven by collection of income taxes.
Partially offset by:
-
A
$56.0 million decrease in brokered deposits, reflecting the effect of the maturity of approximately$87.3 million of brokered CDs, with an all-in cost of2.15% , that were paid off during the third quarter, partially offset by an increase of$31.2 million in the balance of non-maturity brokered money market deposit accounts maintained by a deposit broker. The BSPR acquisition added$56.1 million in non-maturity brokered deposits as of September 30, 2020.
The following table provides additional information about the increase/decrease on deposits:
| (In thousands) | Change Composition | |||||||||||||||||||
| September 30, | June 30, | Balance | Organic | Organic | ||||||||||||||||
2020 |
2020 |
Change | Acquired | Growth/(Loss) | Growth/(Loss) % | |||||||||||||||
| Demand Deposits | $ |
6,619,389 |
$ |
4,163,889 |
$ |
2,455,500 |
|
$ |
2,205,143 |
$ |
250,357 |
|
6.01 |
% |
||||||
| Savings Accounts |
|
3,226,685 |
|
2,229,684 |
|
997,001 |
|
|
975,420 |
|
21,581 |
|
0.97 |
% |
||||||
| Government Deposits |
|
2,116,867 |
|
1,217,529 |
|
899,338 |
|
|
670,493 |
|
228,845 |
|
18.80 |
% |
||||||
| Certificates of Deposits |
|
2,685,413 |
|
2,475,030 |
|
210,383 |
|
|
265,890 |
|
(55,507 |
) |
-2.24 |
% |
||||||
| Brokered Deposits |
|
554,544 |
|
610,554 |
|
(56,010 |
) |
|
56,087 |
|
(112,097 |
) |
-18.36 |
% |
||||||
| Total Deposits | $ |
15,202,898 |
$ |
10,696,686 |
$ |
4,506,212 |
|
$ |
4,173,033 |
$ |
333,179 |
|
3.11 |
% |
||||||
Total stockholders’ equity amounted to
The Corporation implemented the CECL model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. As of September 30, 2020, capital ratios remained strong compared to regulatory levels for well capitalized banks. The Corporation’s preliminary estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were
Meanwhile, the preliminary estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank Puerto Rico, were
The acquired assets and off-balance sheet items of BSPR have been fully included and risk weighted in the regulatory capital position determination of the Corporation and FirstBank Puerto Rico as of September 30, 2020. However, following regulatory capital requirements, the quarterly average asset calculation used for the leverage ratio includes the dollar amounts of the acquired assets from the acquisition date through the end of the third quarter, and the denominator for the number of days in the entire quarter, which resulted in a diluted quarterly average asset balance for the quarter ended September 30, 2020. The full effect in the leverage ratio of the assets acquired in the transaction will be reflected in the regulatory capital position determination as of December 31, 2020.
Tangible Common Equity
The Corporation’s tangible common equity ratio decreased to
The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets over the last five quarters to the comparable GAAP items:
| (In thousands, except ratios and per share information) | ||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
|
2020 |
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2019 |
|
||||||
| Tangible Equity: | ||||||||||||||||||||
| Total equity - GAAP | $ |
2,225,282 |
|
$ |
2,214,834 |
|
$ |
2,199,751 |
|
$ |
2,228,073 |
|
$ |
2,200,595 |
|
|||||
| Preferred equity |
|
(36,104 |
) |
|
(36,104 |
) |
|
(36,104 |
) |
|
(36,104 |
) |
|
(36,104 |
) |
|||||
| Goodwill |
|
(34,401 |
) |
|
(28,098 |
) |
|
(28,098 |
) |
|
(28,098 |
) |
|
(28,098 |
) |
|||||
| Purchased credit card relationship intangible |
|
(5,789 |
) |
|
(2,668 |
) |
|
(3,141 |
) |
|
(3,615 |
) |
|
(4,137 |
) |
|||||
| Core deposit intangible |
|
(37,749 |
) |
|
(3,086 |
) |
|
(3,287 |
) |
|
(3,488 |
) |
|
(3,695 |
) |
|||||
| Insurance customer relationship intangible |
|
(355 |
) |
|
(394 |
) |
|
(432 |
) |
|
(470 |
) |
|
(508 |
) |
|||||
| Tangible common equity | $ |
2,110,884 |
|
$ |
2,144,484 |
|
$ |
2,128,689 |
|
$ |
2,156,298 |
|
$ |
2,128,053 |
|
|||||
| Tangible Assets: | ||||||||||||||||||||
| Total assets - GAAP | $ |
18,659,768 |
|
$ |
14,096,406 |
|
$ |
13,047,977 |
|
$ |
12,611,266 |
|
$ |
12,530,713 |
|
|||||
| Goodwill |
|
(34,401 |
) |
|
(28,098 |
) |
|
(28,098 |
) |
|
(28,098 |
) |
|
(28,098 |
) |
|||||
| Purchased credit card relationship intangible |
|
(5,789 |
) |
|
(2,668 |
) |
|
(3,141 |
) |
|
(3,615 |
) |
|
(4,137 |
) |
|||||
| Core deposit intangible |
|
(37,749 |
) |
|
(3,086 |
) |
|
(3,287 |
) |
|
(3,488 |
) |
|
(3,695 |
) |
|||||
| Insurance customer relationship intangible |
|
(355 |
) |
|
(394 |
) |
|
(432 |
) |
|
(470 |
) |
|
(508 |
) |
|||||
| Tangible assets | $ |
18,581,474 |
|
$ |
14,062,160 |
|
$ |
13,013,019 |
|
$ |
12,575,595 |
|
$ |
12,494,275 |
|
|||||
| Common shares outstanding |
|
218,229 |
|
|
218,158 |
|
|
218,161 |
|
|
217,359 |
|
|
217,361 |
|
|||||
| Tangible common equity ratio |
|
11.36 |
% |
|
15.25 |
% |
|
16.36 |
% |
|
17.15 |
% |
|
17.03 |
% |
|||||
| Tangible book value per common share | $ |
9.67 |
|
$ |
9.83 |
|
$ |
9.76 |
|
$ |
9.92 |
|
$ |
9.79 |
|
|||||
Exposure to Puerto Rico Government
As of September 30, 2020, the Corporation had
The aforementioned exposure to municipalities in Puerto Rico included
As of September 30, 2020, the Corporation had
Conference Call / Webcast Information
First BanCorp’s senior management will host an earnings conference call and live webcast on Friday, October 30, 2020, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s web site: www.1firstbank.com or through a dial-in telephone number at (877) 506-6537 or (412) 380–2001 for international callers. The Corporation recommends that listeners go to the web site at least 15 minutes prior to the call to download and install any necessary software. Following the webcast presentation, a question and answer session will be made available to research analysts and institutional investors. A replay of the webcast will be archived in the investor relations section of First BanCorp’s website, www.1firstbank.com, until October 30, 2021. A telephone replay will be available one hour after the end of the conference call through November 30, 2020 at (877) 344-7529 or (412) 317-0088 for international callers. The replay access code is 10149354.
Safe Harbor
This press release may contain “forward-looking statements” concerning the Corporation’s future economic, operational and financial performance. The words or phrases “expect,” “anticipate,” “intend,” “should,” “would,” “believe” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including, but not limited to, the following could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: uncertainties relating to the impact of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases and the development and availability of a vaccine and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that COVID-19 may exacerbate any other factor that could cause our actual results to differ materially from those expressed in or implied by any forward-looking statements; the success of our preventative actions to protect the Corporation’s information and that of its customers in response to the cyber incident that we recently experienced, including the integrity of our data and data security systems, increased mitigation costs or an adverse effect to our reputation; risks related to the effect on the Corporation and its customers of governmental, regulatory, or central bank responses to COVID-19 and the Corporation’s participation in any such responses or programs, such as the Paycheck Protection Program established by the CARES Act of 2020, including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s participation in any such responses or programs; the risk that costs, expenses, and resources associated with the Corporation’s recent acquisition of BSPR may be higher than expected; the ability to successfully complete the integration of systems, procedures, and personnel of BSPR into FirstBank that are necessary to make the transaction economically successful; the risk that the Corporation may not be able to effectively integrate BSPR into the Corporation’s internal control over financial reporting; the risk that the cost savings and any other synergies from the acquisition may not be fully realized or may take longer to realize than expected, such as the risk that deposit attrition, customer loss and/or revenue loss following the acquisition may exceed expectations, including because of the impact of the COVID-19 pandemic on customers; uncertainty as to the ultimate outcomes of actions taken, or those that may be taken, by the Puerto Rico government, or the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to address the Commonwealth of Puerto Rico’s financial problems, including a court-supervised debt restructuring process similar to U.S. bankruptcy protection undertaken pursuant to Title III of PROMESA, the designation by the PROMESA oversight board of Puerto Rico municipalities as instrumentalities covered under PROMESA, the effects of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico; changes in economic and business conditions, including those caused by the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, or other global or regional health crises as well as past or future natural disasters, such as the earthquakes affecting Puerto Rico’s southern coast, that directly or indirectly affect the financial health of the Corporation’s customer base in the geographic areas we serve and may result in increased costs or losses of property and equipment and other assets; the impact that a slowing economy and increased unemployment or underemployment may have on the performance of our loan and lease portfolio, the market price of our investment securities, the availability of sources of funding and the demand for our products; a decrease in demand for the Corporation’s products and services, resulting in lower revenues and earnings because of the continued economic recession in Puerto Rico; uncertainty as to the availability of certain funding sources, such as brokered CDs; the deteriorating weakness of the real estate markets and of the consumer and commercial sectors, which may be exacerbated by unemployment and underemployment and government restrictions imposed as a result of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, and their impact on the credit quality of the Corporation’s loans and other assets, which have contributed and may continue to contribute to, among other things, higher than targeted levels of non-performing assets, charge-offs and provisions for credit losses, and may subject the Corporation to further risk from loan defaults and foreclosures; the impact of changes in accounting standards or assumptions in applying those standards, including the impact of the COVID-19 pandemic on the determination of the allowance for credit losses required by the new CECL accounting standard effective since January 1, 2020; the ability of FirstBank to realize the benefits of its net deferred tax assets; the ability of FirstBank to generate sufficient cash flow to make dividend payments to the Corporation; adverse changes in general economic conditions in Puerto Rico, the U.S., the U.S. Virgin Islands, and the British Virgin Islands, including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic and recent increases in, and any additional waves of, COVID-19 cases, which may further reduce interest margins, affect funding sources and demand for all of the Corporation’s products and services, and reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio are determined to be credit-related, including additional charges to the provision for credit losses on the Corporation’s remaining
Basis of Presentation
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an investor’s understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the tables in or attached to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
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 equity less preferred equity, goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with 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.
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, such as the hurricanes that affected the Corporation’s service areas in 2017 and the earthquakes experienced in Puerto Rico in early 2020, or health epidemics, such as the COVID-19 pandemic in 2020. 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, finance leases 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 regarded as Special Items, such as hurricane-related insurance recoveries, costs incurred in connection with the COVID-19 pandemic response efforts, merger and restructuring costs in connection with the acquisition of BSPR, and the accelerated discount from the early payoff of an acquired commercial mortgage loan reflected above, because management believes these items 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.
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 facilitates comparison of results to the results of peers.
The following table reconciles net interest income in accordance with GAAP to net interest income excluding valuations, and net interest income on a tax-equivalent basis for third and second quarters of 2020, the third quarter of 2019 and the nine-month periods ended September 30, 2020 and 2019. The table also reconciles net interest spread and net interest margin to these items excluding valuations, and on a tax-equivalent basis.
| (Dollars in thousands) | Quarter Ended | Nine-Month Period Ended | ||||||||||||||||||
| September 30, 2020 |
June 30, 2020 |
September 30, 2019 |
September 30, 2020 |
September 30, 2019 |
||||||||||||||||
| Net Interest Income | ||||||||||||||||||||
| Interest income - GAAP | $ |
170,402 |
|
$ |
158,616 |
|
$ |
172,295 |
|
$ |
494,282 |
|
$ |
508,277 |
|
|||||
| Unrealized loss on | ||||||||||||||||||||
| derivative instruments |
|
(18 |
) |
|
- |
|
|
1 |
|
|
(18 |
) |
|
6 |
|
|||||
| Interest income excluding valuations |
|
170,384 |
|
|
158,616 |
|
|
172,296 |
|
|
494,264 |
|
|
508,283 |
|
|||||
| Prepayment penalty income on a commercial mortgage loan tied to an interest rate swap |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|||||
| Interest income excluding valuations and a |
|
170,384 |
|
|
158,616 |
|
|
172,296 |
|
|
172,296 |
|
|
169,511 |
|
|||||
| Tax-equivalent adjustment |
|
4,964 |
|
|
5,135 |
|
|
4,964 |
|
|
15,751 |
|
|
15,215 |
|
|||||
| Interest income on a tax-equivalent basis and excluding valuations | $ |
175,348 |
|
$ |
163,751 |
|
$ |
177,260 |
|
$ |
510,015 |
|
$ |
523,498 |
|
|||||
| Interest expense - GAAP |
|
21,706 |
|
|
23,406 |
|
|
27,870 |
|
|
71,727 |
|
|
81,125 |
|
|||||
| Net interest income - GAAP | $ |
148,696 |
|
$ |
135,210 |
|
$ |
144,425 |
|
$ |
422,555 |
|
$ |
427,152 |
|
|||||
| Net interest income excluding valuations | $ |
148,678 |
|
$ |
135,210 |
|
$ |
144,426 |
|
$ |
422,537 |
|
$ |
427,158 |
|
|||||
| Net interest income on a tax-equivalent basis and excluding valuations | $ |
153,642 |
|
$ |
140,345 |
|
$ |
149,390 |
|
$ |
438,288 |
|
$ |
442,373 |
|
|||||
| Average Balances | ||||||||||||||||||||
| Loans and leases | $ |
10,163,671 |
|
$ |
9,247,878 |
|
$ |
9,026,725 |
|
$ |
9,472,189 |
|
$ |
8,992,156 |
|
|||||
| Total securities, other short-term investments and interest-bearing cash balances |
|
4,871,710 |
|
|
3,636,532 |
|
|
2,691,584 |
|
|
3,859,381 |
|
|
2,655,820 |
|
|||||
| Average interest-earning assets | $ |
15,035,381 |
|
$ |
12,884,410 |
|
$ |
11,718,309 |
|
$ |
13,331,570 |
|
$ |
11,647,976 |
|
|||||
| Average interest-bearing liabilities | $ |
9,732,691 |
|
$ |
8,436,511 |
|
$ |
7,819,008 |
|
$ |
8,729,809 |
|
$ |
7,716,951 |
|
|||||
| Average Yield/Rate | ||||||||||||||||||||
| Average yield on interest-earning assets - GAAP |
|
4.51 |
% |
|
4.95 |
% |
|
5.83 |
% |
|
4.95 |
% |
|
5.83 |
% |
|||||
| Average rate on interest-bearing liabilities - GAAP |
|
0.89 |
% |
|
1.12 |
% |
|
1.41 |
% |
|
1.10 |
% |
|
1.41 |
% |
|||||
| Net interest spread - GAAP |
|
3.62 |
% |
|
3.83 |
% |
|
4.42 |
% |
|
3.85 |
% |
|
4.42 |
% |
|||||
| Net interest margin - GAAP |
|
3.93 |
% |
|
4.22 |
% |
|
4.89 |
% |
|
4.23 |
% |
|
4.90 |
% |
|||||
| Average yield on interest-earning assets excluding valuations |
|
4.51 |
% |
|
4.95 |
% |
|
5.83 |
% |
|
4.95 |
% |
|
5.83 |
% |
|||||
| Average rate on interest-bearing liabilities excluding valuations |
|
0.89 |
% |
|
1.12 |
% |
|
1.41 |
% |
|
1.10 |
% |
|
1.41 |
% |
|||||
| Net interest spread excluding valuations |
|
3.62 |
% |
|
3.83 |
% |
|
4.42 |
% |
|
3.85 |
% |
|
4.42 |
% |
|||||
| Net interest margin excluding valuations |
|
3.93 |
% |
|
4.22 |
% |
|
4.89 |
% |
|
4.23 |
% |
|
4.90 |
% |
|||||
| Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations |
|
4.64 |
% |
|
5.11 |
% |
|
6.00 |
% |
|
5.11 |
% |
|
6.01 |
% |
|||||
| Average rate on interest-bearing liabilities excluding valuations |
|
0.89 |
% |
|
1.12 |
% |
|
1.41 |
% |
|
1.10 |
% |
|
1.41 |
% |
|||||
| Net interest spread on a tax-equivalent basis and excluding valuations |
|
3.75 |
% |
|
3.99 |
% |
|
4.59 |
% |
|
4.01 |
% |
|
4.60 |
% |
|||||
| Net interest margin on a tax-equivalent basis and excluding valuations |
|
4.07 |
% |
|
4.38 |
% |
|
5.06 |
% |
|
4.39 |
% |
|
5.08 |
% |
|||||
Financial measures adjusted to exclude the effect of Special 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.
To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that investors would benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income and non-interest expenses to exclude items that management identifies as Special Items because management believes they 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. This press release includes the following non-GAAP financial measures for the third and second quarters of 2020 and the third quarter of 2019 that reflect the described items that were excluded for one of those reasons:
- Adjusted net income for the third and second quarters of 2020 and the third quarter of 2019 reflect the following exclusions:
- Gain of
- Merger and restructuring costs of
- The
- COVID-19 pandemic-related expenses of
- A
- Benefit of
- The accelerated discount accretion of
- The tax-related effects of all of the pre-tax items mentioned in the above bullets as follows:
-
Tax benefit of
$3.9 million ,$1.1 million and$0.2 million in the third quarter of 2020, second quarter of 2020, and third quarter of 2019, respectively, related to merger and restructuring costs in connection with the pending acquisition of BSPR (calculated based on the statutory tax rate of37.5% ).
-
Tax benefit of
$0.4 million and$1.1 million in the third quarter of 2020 and second quarter of 2020, respectively, in connection with the COVID-19 pandemic-related expenses (calculated based on the statutory tax rate of37.5% )
-
Tax expense of
$1.9 million and$0.1 million in the second quarter of 2020 and third quarter of 2019, respectively, related to the benefit of hurricane-related insurance recoveries (calculated based on the statutory tax rate of37.5% ).
-
Tax expense of
$1.1 million in the third quarter of 2019 related to the accelerated discount accretion from the payoff of an acquired commercial mortgage loan (calculated based on the statutory tax rate of37.5% for 2019).
- No tax expense/benefit was recorded for the gain/loss on sales of U.S. agencies MBS and U.S. Treasury Notes in the third and second quarters of 2020. Those sales consisted of tax-exempt securities or were recorded at the tax-exempt international banking entity subsidiary level.
- The gain realized on the repurchase and cancellation of trust-preferred securities in the third quarter of 2020 recorded at the holding company level had no effect on the income tax expense in 2020.
- Adjusted non-interest expenses – The following tables reconcile for the third and second quarters of 2020 the non-interest expenses to adjusted non-interest expenses, which is a non-GAAP financial measure that excludes some of the Special Items identified above:
| (Dollars in thousands) | ||||||||||||
| Third Quarter 2020 | Non-Interest Expenses (GAAP) |
Merger and Restructuring Costs |
COVID-19 Pandemic- Related Expenses |
Adjusted (Non-GAAP) | ||||||||
| Non-interest expenses | $ |
107,508 |
$ |
10,441 |
$ |
962 |
$ |
96,105 |
||||
| Employees' compensation and benefits |
|
43,063 |
|
- |
|
18 |
|
43,045 |
||||
| Occupancy and equipment |
|
19,064 |
|
- |
|
768 |
|
18,296 |
||||
| Business promotion |
|
3,046 |
|
- |
|
71 |
|
2,975 |
||||
| Professional service fees |
|
11,563 |
|
- |
|
2 |
|
11,561 |
||||
| Taxes, other than income taxes |
|
4,510 |
|
- |
|
82 |
|
4,428 |
||||
| Insurance and supervisory fees |
|
3,019 |
|
- |
|
- |
|
3,019 |
||||
| Net loss on other real estate owned operations |
|
1,019 |
|
- |
|
- |
|
1,019 |
||||
| Merger and restrucuring costs |
|
10,441 |
|
10,441 |
|
- |
|
- |
||||
| Other non-interest expenses |
|
11,783 |
|
- |
|
21 |
|
11,762 |
||||
| (Dollars in thousands) | ||||||||||||
| Second Quarter 2020 | Non-Interest Expenses (GAAP) | Merger and Restructuring Costs | COVID-19 Pandemic-Related Expenses | Adjusted (Non-GAAP) | ||||||||
| Non-interest expenses | $ |
89,786 |
$ |
2,902 |
$ |
2,961 |
$ |
83,923 |
||||
| Employees' compensation and benefits |
|
39,532 |
|
- |
|
1,695 |
|
37,837 |
||||
| Occupancy and equipment |
|
16,376 |
|
- |
|
851 |
|
15,525 |
||||
| Business promotion |
|
2,314 |
|
- |
|
295 |
|
2,019 |
||||
| Professional service fees |
|
11,968 |
|
- |
|
5 |
|
11,963 |
||||
| Taxes, other than income taxes |
|
3,577 |
|
- |
|
77 |
|
3,500 |
||||
| Insurance and supervisory fees |
|
2,565 |
|
- |
|
- |
|
2,565 |
||||
| Net loss on other real estate owned operations |
|
811 |
|
- |
|
- |
|
811 |
||||
| Merger and restrucuring costs |
|
2,902 |
|
2,902 |
|
- |
|
- |
||||
| Other non-interest expenses |
|
9,741 |
|
- |
|
38 |
|
9,703 |
||||
- Allowance for credit losses on loans and finance leases to adjusted total loans held for investment ratio - The following table reconciles the ratio of the allowance for credit losses on loans and finance leases to adjusted total loans held for investment, excluding SBA PPP loans, as of September 30, 2020 and June 30, 2020:
| Allowance for credit losses for loans and finance leases to Loans Held for Investment (GAAP to Non-GAAP reconciliation) |
||||||||
| As of September 30, 2020 | ||||||||
| (In thousands) | Allowance for Credit Losses for Loans and Finance Leases |
Loans Held for Investment | ||||||
| Allowance for credit losses for loans and finance leases and loans held for investment (GAAP) | $ |
384,718 |
|
$ |
11,847,275 |
|||
| Less: | ||||||||
| SBA PPP loans |
|
- |
|
|
453,358 |
|||
| Allowance for credit losses for loans and finance leases and adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP) | $ |
384,718 |
|
$ |
11,393,917 |
|||
| Allowance for credit losses for loans and finance leases to loans held for investment (GAAP) |
|
3.25 |
% |
|||||
| Allowance for credit losses for loans and finance leases to adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP) |
|
3.38 |
% |
|||||
| Allowance for credit losses for loans and finance leases to Loans Held for Investment (GAAP to Non-GAAP reconciliation) |
||||||||
| As of June 30, 2020 | ||||||||
| (In thousands) | Allowance for Credit Losses for Loans and Finance Leases |
Loans Held for Investment | ||||||
| Allowance for credit losses for loans and finance leases and loans held for investment (GAAP) | $ |
319,297 |
|
$ |
9,366,216 |
|||
| Less: | ||||||||
| SBA PPP loans |
|
- |
|
|
359,572 |
|||
| Allowance for credit losses for loans and finance leases and adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP) | $ |
319,297 |
|
$ |
9,006,644 |
|||
| Allowance for credit losses for loans and finance leases to loans held for investment (GAAP) |
|
3.41 |
% |
|||||
| Allowance for credit losses for loans and finance leases to adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP) |
|
3.55 |
% |
|||||
- Adjusted provision for credit losses on loans to net charge-offs ratios - The following table reconciles the ratio of the provision for credit losses on loans and finance leases to net charge-offs to the ratio of adjusted provision for credit losses on loans and finance leases to net charge-offs for the nine-month period ended September 30, 2019 excluding the hurricane-related qualitative reserve releases, which the Corporation regards as a Special Item:
| Provision for credit losses for loans and finance leases to Net Charge-Offs (GAAP to Non-GAAP reconciliation) |
||||||||
| Nine-Month Period Ended September 30, 2019 | ||||||||
| (In thousands) | Provision for Credit Losses for Loans and Finance Leases |
Net Charge-Offs | ||||||
| Provision for credit losses for loans and finance leases and net charge-offs (GAAP) | $ |
31,752 |
|
$ |
62,539 |
|||
| Less Special Item: | ||||||||
| Hurrricane-related qualitative reserve release |
|
6,425 |
|
|
- |
|||
| Provision for credit losses for loans and finance leases and net charge-offs, excluding special item (Non-GAAP) | $ |
38,177 |
|
$ |
62,539 |
|||
| Provision for credit losses for loans and finnace leases to net charge-offs (GAAP) |
|
50.77 |
% |
|||||
| Provision for credit losses for loans and finance leases to net charge-offs, excluding special item (Non-GAAP) |
|
61.05 |
% |
|||||
Management believes that the presentation of adjusted net income, adjusted non-interest expenses and adjustments to the various components of non-interest expenses, the ratio of allowance for credit losses to adjusted total loans held for investment, and the ratio of adjusted provision for credit losses for loans and finance leases to net charge-offs enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. In addition, the Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process.
FIRST BANCORP |
|||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION |
|||||||||||||
| As of | |||||||||||||
| September 30, | June 30, | December 31, | |||||||||||
| (In thousands, except for share information) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
||||
| ASSETS | |||||||||||||
| Cash and due from banks | $ |
2,360,524 |
|
$ |
1,203,791 |
|
$ |
546,391 |
|
||||
| Money market investments: | |||||||||||||
| Time deposits with other financial institutions |
|
300 |
|
|
300 |
|
|
300 |
|
||||
| Other short-term investments |
|
108,683 |
|
|
97,392 |
|
|
97,408 |
|
||||
| Total money market investments |
|
108,983 |
|
|
97,692 |
|
|
97,708 |
|
||||
| Investment securities available for sale, at fair value (allowance for credit losses of |
|
3,294,649 |
|
|
2,723,171 |
|
|
2,123,525 |
|
||||
| Investment securities held to maturity, at amortized cost, net of allowance for credit losses of |
|
178,980 |
|
|
129,265 |
|
|
138,675 |
|
||||
| Equity securities |
|
39,290 |
|
|
36,262 |
|
|
38,249 |
|
||||
| Total investment securities |
|
3,512,919 |
|
|
2,888,698 |
|
|
2,300,449 |
|
||||
| Loans, net of allowance for credit losses of |
|||||||||||||
| (June 30, 2020 - |
|
11,462,557 |
|
|
9,046,919 |
|
|
8,847,066 |
|
||||
| Loans held for sale, at lower of cost or market |
|
48,670 |
|
|
38,986 |
|
|
39,477 |
|
||||
| Total loans, net |
|
11,511,227 |
|
|
9,085,905 |
|
|
8,886,543 |
|
||||
| Premises and equipment, net |
|
159,772 |
|
|
148,054 |
|
|
149,989 |
|
||||
| Other real estate owned |
|
89,049 |
|
|
96,319 |
|
|
101,626 |
|
||||
| Accrued interest receivable on loans and investments |
|
77,240 |
|
|
62,983 |
|
|
50,205 |
|
||||
| Deferred tax asset, net |
|
347,543 |
|
|
306,175 |
|
|
264,842 |
|
||||
| Goodwill |
|
34,401 |
|
|
28,098 |
|
|
28,098 |
|
||||
| Intangible assets |
|
43,893 |
|
|
5,754 |
|
|
7,103 |
|
||||
| Other assets |
|
414,217 |
|
|
172,937 |
|
|
178,312 |
|
||||
| Total assets | $ |
18,659,768 |
|
$ |
14,096,406 |
|
$ |
12,611,266 |
|
||||
| LIABILITIES | |||||||||||||
| Deposits: | |||||||||||||
| Non-interest-bearing deposits | $ |
4,467,041 |
|
$ |
3,081,936 |
|
$ |
2,367,856 |
|
||||
| Interest-bearing deposits |
|
10,735,857 |
|
|
7,614,750 |
|
|
6,980,573 |
|
||||
| Total deposits |
|
15,202,898 |
|
|
10,696,686 |
|
|
9,348,429 |
|
||||
| Securities sold under agreements to repurchase |
|
300,000 |
|
|
300,000 |
|
|
100,000 |
|
||||
| Advances from the Federal Home Loan Bank (FHLB) |
|
490,000 |
|
|
490,000 |
|
|
570,000 |
|
||||
| Other borrowings |
|
183,762 |
|
|
184,150 |
|
|
184,150 |
|
||||
| Accounts payable and other liabilities |
|
257,826 |
|
|
210,736 |
|
|
180,614 |
|
||||
| Total liabilities |
|
16,434,486 |
|
|
11,881,572 |
|
|
10,383,193 |
|
||||
| STOCKHOLDERS' EQUITY | |||||||||||||
| Preferred Stock, authorized 50,000,000 shares; issued 22,828,174 shares; outstanding 1,444,146 shares; aggregate liquidation value of |
|
36,104 |
|
|
36,104 |
|
|
36,104 |
|
||||
| Common stock, |
|
22,303 |
|
|
22,296 |
|
|
22,210 |
|
||||
| Less: Treasury stock (at par value) |
|
(480 |
) |
|
(480 |
) |
|
(474 |
) |
||||
| Common stock outstanding, 218,228,901 shares outstanding (June 30, 2020 - 218,157,639 shares outstanding; December 31, 2019 - 217,359,337 shares outstanding) |
|
21,823 |
|
|
21,816 |
|
|
21,736 |
|
||||
| Additional paid-in capital |
|
945,213 |
|
|
943,816 |
|
|
941,652 |
|
||||
| Retained earnings |
|
1,176,815 |
|
|
1,159,828 |
|
|
1,221,817 |
|
||||
| Accumulated other comprehensive income |
|
45,327 |
|
|
53,270 |
|
|
6,764 |
|
||||
| Total stockholders' equity |
|
2,225,282 |
|
|
2,214,834 |
|
|
2,228,073 |
|
||||
| Total liabilities and stockholders' equity | $ |
18,659,768 |
|
$ |
14,096,406 |
|
$ |
12,611,266 |
|
||||
| FIRST BANCORP | |||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||||||
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
| (In thousands, except per share information) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
2019 |
|
|||||||||
| Net interest income: | |||||||||||||||||||||||
| Interest income | $ |
170,402 |
|
$ |
158,616 |
|
$ |
172,295 |
|
$ |
494,282 |
$ |
508,277 |
|
|||||||||
| Interest expense |
|
21,706 |
|
|
23,406 |
|
|
27,870 |
|
|
71,727 |
|
81,125 |
|
|||||||||
| Net interest income |
|
148,696 |
|
|
135,210 |
|
|
144,425 |
|
|
422,555 |
|
427,152 |
|
|||||||||
| Provision for credit losses: | |||||||||||||||||||||||
| Loans |
|
48,078 |
|
|
36,408 |
|
|
7,398 |
|
|
158,531 |
|
31,752 |
|
|||||||||
| Unfunded loan commitments |
|
(803 |
) |
|
1,343 |
|
|
- |
|
|
2,359 |
|
(412 |
) |
|||||||||
| Debt securities |
|
(361 |
) |
|
1,263 |
|
|
- |
|
|
2,404 |
|
- |
|
|||||||||
| Provision for credit losses |
|
46,914 |
|
|
39,014 |
|
|
7,398 |
|
|
163,294 |
|
31,340 |
|
|||||||||
| Net interest income after provision for credit losses |
|
101,782 |
|
|
96,196 |
|
|
137,027 |
|
|
259,261 |
|
395,812 |
|
|||||||||
| Non-interest income: | |||||||||||||||||||||||
| Service charges on deposit accounts |
|
5,848 |
|
|
4,475 |
|
|
6,108 |
|
|
16,280 |
|
17,711 |
|
|||||||||
| Mortgage banking activities |
|
7,099 |
|
|
3,686 |
|
|
4,396 |
|
|
14,573 |
|
12,418 |
|
|||||||||
| Net (loss) gain on investments |
|
5,288 |
|
|
(155 |
) |
|
(497 |
) |
|
13,380 |
|
(497 |
) |
|||||||||
| Gain on early extinguishment of debt |
|
94 |
|
|
- |
|
|
- |
|
|
94 |
|
- |
|
|||||||||
| Other non-interest income |
|
11,605 |
|
|
12,886 |
|
|
11,394 |
|
|
36,699 |
|
36,535 |
|
|||||||||
| Total non-interest income |
|
29,934 |
|
|
20,892 |
|
|
21,401 |
|
|
81,026 |
|
66,167 |
|
|||||||||
| Non-interest expenses: | |||||||||||||||||||||||
| Employees' compensation and benefits |
|
43,063 |
|
|
39,532 |
|
|
41,409 |
|
|
125,454 |
|
121,518 |
|
|||||||||
| Occupancy and equipment |
|
19,064 |
|
|
16,376 |
|
|
15,129 |
|
|
50,567 |
|
47,018 |
|
|||||||||
| Business promotion |
|
3,046 |
|
|
2,314 |
|
|
4,004 |
|
|
8,982 |
|
11,650 |
|
|||||||||
| Professional service fees |
|
11,563 |
|
|
11,968 |
|
|
11,875 |
|
|
35,324 |
|
33,856 |
|
|||||||||
| Taxes, other than income taxes |
|
4,510 |
|
|
3,577 |
|
|
3,904 |
|
|
11,967 |
|
11,461 |
|
|||||||||
| Insurance and supervisory fees |
|
3,019 |
|
|
2,565 |
|
|
2,425 |
|
|
8,193 |
|
7,322 |
|
|||||||||
| Net loss on other real estate owned operations |
|
1,019 |
|
|
811 |
|
|
2,578 |
|
|
3,018 |
|
11,364 |
|
|||||||||
| Merger and restructuring costs |
|
10,441 |
|
|
2,902 |
|
|
592 |
|
|
14,188 |
|
592 |
|
|||||||||
| Other non-interest expenses |
|
11,783 |
|
|
9,741 |
|
|
10,917 |
|
|
31,785 |
|
31,373 |
|
|||||||||
| Total non-interest expenses |
|
107,508 |
|
|
89,786 |
|
|
92,833 |
|
|
289,478 |
|
276,154 |
|
|||||||||
| Income before income taxes |
|
24,208 |
|
|
27,302 |
|
|
65,595 |
|
|
50,809 |
|
185,825 |
|
|||||||||
| Income tax benefit (expense) |
|
4,405 |
|
|
(6,046 |
) |
|
(19,268 |
) |
|
1,326 |
|
(54,897 |
) |
|||||||||
| Net income | $ |
28,613 |
|
$ |
21,256 |
|
$ |
46,327 |
|
$ |
52,135 |
$ |
130,928 |
|
|||||||||
| Net income attributable to common stockholders | $ |
27,944 |
|
$ |
20,587 |
|
$ |
45,658 |
|
$ |
50,128 |
$ |
128,921 |
|
|||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ |
0.13 |
|
$ |
0.09 |
|
$ |
0.21 |
|
$ |
0.23 |
$ |
0.60 |
|
|||||||||
| Diluted | $ |
0.13 |
|
$ |
0.09 |
|
$ |
0.21 |
|
$ |
0.23 |
$ |
0.59 |
|
|||||||||
About First BanCorp.
First BanCorp. is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the U.S. and the British Virgin Islands and Florida, and of FirstBank Insurance Agency. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp. and First Express, both small loan companies. First BanCorp’s shares of common stock trade on the New York Stock Exchange under the symbol FBP. Additional information about First BanCorp. may be found at www.1firstbank.com.
EXHIBIT A
Table 1 – Selected Financial Data
| (In thousands, except per share amounts and financial ratios) | Quarter Ended | Nine-Month Period Ended | |||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||
2020 |
2020 |
2019 |
2020 |
2019 |
|||||||||||||||
| Condensed Income Statements: | |||||||||||||||||||
| Total interest income | $ |
170,402 |
$ |
158,616 |
|
$ |
172,295 |
|
$ |
494,282 |
$ |
508,277 |
|
||||||
| Total interest expense |
|
21,706 |
|
23,406 |
|
|
27,870 |
|
|
71,727 |
|
81,125 |
|
||||||
| Net interest income |
|
148,696 |
|
135,210 |
|
|
144,425 |
|
|
422,555 |
|
427,152 |
|
||||||
| Provision for credit losses |
|
46,914 |
|
39,014 |
|
|
7,398 |
|
|
163,294 |
|
31,340 |
|
||||||
| Non-interest income |
|
29,934 |
|
20,892 |
|
|
21,401 |
|
|
81,026 |
|
66,167 |
|
||||||
| Non-interest expenses |
|
107,508 |
|
89,786 |
|
|
92,833 |
|
|
289,478 |
|
276,154 |
|
||||||
| Income before income taxes |
|
24,208 |
|
27,302 |
|
|
65,595 |
|
|
50,809 |
|
185,825 |
|
||||||
| Income tax expense |
|
4,405 |
|
(6,046 |
) |
|
(19,268 |
) |
|
1,326 |
|
(54,897 |
) |
||||||
| Net income |
|
28,613 |
|
21,256 |
|
|
46,327 |
|
|
52,135 |
|
130,928 |
|
||||||
| Net income attributable to common stockholders |
|
27,944 |
|
20,587 |
|
|
45,658 |
|
|
50,128 |
|
128,921 |
|
||||||
| Per Common Share Results: | |||||||||||||||||||
| Net earnings per share - basic | $ |
0.13 |
$ |
0.09 |
|
$ |
0.21 |
|
$ |
0.23 |
$ |
0.60 |
|
||||||
| Net earnings per share - diluted | $ |
0.13 |
$ |
0.09 |
|
$ |
0.21 |
|
$ |
0.23 |
$ |
0.59 |
|
||||||
| Cash dividends declared | $ |
0.05 |
$ |
0.05 |
|
$ |
0.03 |
|
$ |
0.15 |
$ |
0.09 |
|
||||||
| Average shares outstanding |
|
216,922 |
|
216,920 |
|
|
216,690 |
|
|
216,876 |
|
216,569 |
|
||||||
| Average shares outstanding diluted |
|
217,715 |
|
217,570 |
|
|
217,227 |
|
|
217,533 |
|
217,053 |
|
||||||
| Book value per common share | $ |
10.03 |
$ |
9.99 |
|
$ |
9.96 |
|
$ |
10.03 |
$ |
9.96 |
|
||||||
| Tangible book value per common share (1) | $ |
9.67 |
$ |
9.83 |
|
$ |
9.79 |
|
$ |
9.67 |
$ |
9.79 |
|
||||||
| Selected Financial Ratios (In Percent): | |||||||||||||||||||
| Profitability: | |||||||||||||||||||
| Return on Average Assets |
|
0.72 |
|
0.63 |
|
|
1.47 |
|
|
0.50 |
|
1.41 |
|
||||||
| Interest Rate Spread (2) |
|
3.75 |
|
3.99 |
|
|
4.59 |
|
|
4.01 |
|
4.60 |
|
||||||
| Net Interest Margin (2) |
|
4.07 |
|
4.38 |
|
|
5.06 |
|
|
4.39 |
|
5.08 |
|
||||||
| Return on Average Total Equity |
|
5.07 |
|
3.86 |
|
|
8.39 |
|
|
3.13 |
|
8.19 |
|
||||||
| Return on Average Common Equity |
|
5.03 |
|
3.80 |
|
|
8.53 |
|
|
3.06 |
|
8.33 |
|
||||||
| Average Total Equity to Average Total Assets |
|
14.22 |
|
16.32 |
|
|
17.55 |
|
|
15.84 |
|
17.22 |
|
||||||
| Total capital | 20.32 |
|
25.08 |
|
|
25.27 |
|
|
20.32 |
|
25.27 |
|
|||||||
| Common equity Tier 1 capital | 17.22 |
|
21.52 |
|
|
21.61 |
|
|
17.22 |
|
21.61 |
|
|||||||
| Tier 1 capital | 17.53 |
|
21.90 |
|
|
22.02 |
|
|
17.53 |
|
22.02 |
|
|||||||
| Leverage | 13.04 |
|
15.23 |
|
|
16.04 |
|
|
13.04 |
|
16.04 |
|
|||||||
| Tangible common equity ratio (1) |
|
11.36 |
|
15.25 |
|
|
17.03 |
|
|
11.36 |
|
17.03 |
|
||||||
| Dividend payout ratio |
|
38.81 |
|
52.68 |
|
|
14.24 |
|
|
64.90 |
|
15.12 |
|
||||||
| Efficiency ratio (3) |
|
60.18 |
|
57.52 |
|
|
55.98 |
|
|
57.48 |
|
55.98 |
|
||||||
| Asset Quality: | |||||||||||||||||||
| Allowance for credit losses on loans and finance leases to loans held for investment |
|
3.25 |
|
3.41 |
|
|
1.85 |
|
|
3.25 |
|
1.85 |
|
||||||
| Net charge-offs (annualized) to average loans |
|
0.45 |
|
0.43 |
|
|
0.61 |
|
|
0.55 |
|
0.93 |
|
||||||
| Provision for credit losses for loans and finance leases to net charge-offs (4) |
|
421.70 |
|
368.31 |
|
|
53.48 |
|
|
407.94 |
|
50.77 |
|
||||||
| Non-performing assets to total assets |
|
1.57 |
|
2.16 |
|
|
2.65 |
|
|
1.57 |
|
2.65 |
|
||||||
| Nonaccrual loans held for investment to total loans held for investment |
|
1.70 |
|
2.18 |
|
|
2.41 |
|
|
1.70 |
|
2.41 |
|
||||||
| Allowance for credit losses on loans and finance leases to total nonaccrual loans held for investment |
|
191.13 |
|
156.54 |
|
|
76.57 |
|
|
191.13 |
|
76.57 |
|
||||||
| Allowance for credit losses on loans and finance leases to total nonaccrual loans held for investment, | |||||||||||||||||||
| excluding residential real estate loans |
|
490.13 |
|
390.70 |
|
|
185.65 |
|
|
490.13 |
|
185.65 |
|
||||||
| . | |||||||||||||||||||
| Other Information: | |||||||||||||||||||
| Common Stock Price: End of period | $ |
5.22 |
$ |
5.59 |
|
$ |
9.98 |
|
$ |
5.22 |
$ |
9.98 |
|
||||||
| 1- Non-GAAP financial measure. See page 24 for GAAP to Non-GAAP reconciliations. | |||||||||||||||||||
| 2- On a tax-equivalent basis and excluding changes in the fair value of derivative instruments (Non-GAAP financial measure). See page 28 for GAAP to Non-GAAP reconciliations and refer to discussions in Table 2 and 3 below. | |||||||||||||||||||
| 3- Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring income and changes in the fair value of derivative instruments. | |||||||||||||||||||
| 4- The ratio of the provision for credit losses for loans and finance leases to net charge-offs, excluding the hurricane-related qualitative reserve release was |
|||||||||||||||||||
Table 2 – Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis)
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Average volume | Interest income (1) / expense | Average rate (1) | ||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | June 30, | September 30, | September 30, | June 30, | September 30, | ||||||||||||||||||
| Quarter ended | 2020 |
2020 |
2019 |
2020 |
2020 |
2019 |
2020 |
2020 |
2019 |
|||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||
| Money market & other short-term investments | $ |
1,450,669 |
$ |
1,073,669 |
$ |
762,934 |
$ |
405 |
$ |
283 |
$ |
4,081 |
0.11 |
% |
0.11 |
% |
2.12 |
% |
||||||||
| Government obligations (2) |
|
1,129,976 |
|
737,301 |
|
588,287 |
|
4,890 |
|
5,263 |
|
6,752 |
1.72 |
% |
2.87 |
% |
4.55 |
% |
||||||||
| Mortgage-backed securities |
|
2,253,121 |
|
1,787,611 |
|
1,295,189 |
|
11,525 |
|
12,340 |
|
9,820 |
2.03 |
% |
2.78 |
% |
3.01 |
% |
||||||||
| FHLB stock |
|
31,635 |
|
31,684 |
|
41,779 |
|
441 |
|
490 |
|
660 |
5.55 |
% |
6.22 |
% |
6.27 |
% |
||||||||
| Other investments |
|
6,309 |
|
6,267 |
|
3,395 |
|
10 |
|
10 |
|
7 |
0.63 |
% |
0.64 |
% |
0.82 |
% |
||||||||
| Total investments (3) |
|
4,871,710 |
|
3,636,532 |
|
2,691,584 |
|
17,271 |
|
18,386 |
|
21,320 |
1.41 |
% |
2.03 |
% |
3.14 |
% |
||||||||
| Residential mortgage loans |
|
3,117,021 |
|
2,847,192 |
|
3,018,603 |
|
41,577 |
|
37,812 |
|
40,610 |
5.31 |
% |
5.34 |
% |
5.34 |
% |
||||||||
| Construction loans |
|
185,359 |
|
169,508 |
|
104,816 |
|
2,453 |
|
2,185 |
|
1,691 |
5.26 |
% |
5.18 |
% |
6.40 |
% |
||||||||
| C&I and commercial mortgage loans |
|
4,468,614 |
|
3,944,614 |
|
3,748,186 |
|
51,902 |
|
46,755 |
|
55,543 |
4.62 |
% |
4.77 |
% |
5.88 |
% |
||||||||
| Finance leases |
|
447,854 |
|
429,286 |
|
378,866 |
|
8,349 |
|
7,747 |
|
7,192 |
7.42 |
% |
7.26 |
% |
7.53 |
% |
||||||||
| Consumer loans |
|
1,944,823 |
|
1,857,278 |
|
1,776,254 |
|
53,796 |
|
50,866 |
|
50,904 |
11.00 |
% |
11.02 |
% |
11.37 |
% |
||||||||
| Total loans (4) (5) |
|
10,163,671 |
|
9,247,878 |
|
9,026,725 |
|
158,077 |
|
145,365 |
|
155,940 |
6.19 |
% |
6.32 |
% |
6.85 |
% |
||||||||
| Total interest-earning assets | $ |
15,035,381 |
$ |
12,884,410 |
$ |
11,718,309 |
$ |
175,348 |
$ |
163,751 |
$ |
177,260 |
4.64 |
% |
5.11 |
% |
6.00 |
% |
||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||
| Brokered CDs | $ |
332,429 |
$ |
418,246 |
$ |
502,569 |
$ |
1,850 |
$ |
2,270 |
$ |
2,843 |
2.21 |
% |
2.18 |
% |
2.24 |
% |
||||||||
| Other interest-bearing deposits |
|
8,412,342 |
|
6,987,301 |
|
6,290,767 |
|
14,238 |
|
14,727 |
|
17,498 |
0.67 |
% |
0.85 |
% |
1.10 |
% |
||||||||
| Loans payable |
|
- |
|
29,451 |
|
- |
|
- |
|
18 |
|
- |
0.00 |
% |
0.25 |
% |
- |
|
||||||||
| Other borrowed funds |
|
493,572 |
|
484,150 |
|
284,150 |
|
2,840 |
|
3,521 |
|
3,651 |
2.29 |
% |
2.92 |
% |
5.10 |
% |
||||||||
| FHLB advances |
|
494,348 |
|
517,363 |
|
741,522 |
|
2,778 |
|
2,870 |
|
3,878 |
2.24 |
% |
2.23 |
% |
2.07 |
% |
||||||||
| Total interest-bearing liabilities | $ |
9,732,691 |
$ |
8,436,511 |
$ |
7,819,008 |
$ |
21,706 |
$ |
23,406 |
$ |
27,870 |
0.89 |
% |
1.12 |
% |
1.41 |
% |
||||||||
| Net interest income | $ |
153,642 |
$ |
140,345 |
$ |
149,390 |
||||||||||||||||||||
| Interest rate spread | 3.75 |
% |
3.99 |
% |
4.59 |
% |
||||||||||||||||||||
| Net interest margin | 4.07 |
% |
4.38 |
% |
5.06 |
% |
||||||||||||||||||||
| 1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of |
||||||||||||||||||||||||||
| 2- Government obligations include debt issued by government-sponsored agencies. | ||||||||||||||||||||||||||
| 3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes. | ||||||||||||||||||||||||||
| 4- Average loan balances include the average of non-performing loans. | ||||||||||||||||||||||||||
| 5- Interest income on loans includes |
||||||||||||||||||||||||||
Table 3 – Year-to-Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis)
| (Dollars in thousands) | |||||||||||||||||
| Average volume | Interest income (1) / expense | Average rate (1) | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||
| Nine-Month Period Ended | 2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
|||||||||||
| Interest-earning assets: | |||||||||||||||||
| Money market & other short-term investments | $ |
1,099,634 |
$ |
615,499 |
$ |
2,950 |
$ |
10,350 |
0.36 |
% |
2.25 |
% |
|||||
| Government obligations (2) |
|
784,348 |
|
690,566 |
|
15,454 |
|
21,482 |
2.63 |
% |
4.16 |
% |
|||||
| Mortgage-backed securities |
|
1,937,083 |
|
1,304,777 |
|
37,874 |
|
32,033 |
2.61 |
% |
3.28 |
% |
|||||
| FHLB stock |
|
32,234 |
|
41,809 |
|
1,527 |
|
2,013 |
6.33 |
% |
6.44 |
% |
|||||
| Other investments |
|
6,082 |
|
3,169 |
|
31 |
|
20 |
0.68 |
% |
0.84 |
% |
|||||
| Total investments (3) |
|
3,859,381 |
|
2,655,820 |
|
57,836 |
|
65,898 |
2.00 |
% |
3.32 |
% |
|||||
| Residential mortgage loans |
|
2,952,278 |
|
3,071,624 |
|
118,044 |
|
123,779 |
5.34 |
% |
5.39 |
% |
|||||
| Construction loans |
|
159,092 |
|
94,075 |
|
6,519 |
|
4,531 |
5.47 |
% |
6.44 |
% |
|||||
| C&I and commercial mortgage loans |
|
4,032,497 |
|
3,760,878 |
|
146,629 |
|
163,518 |
4.86 |
% |
5.81 |
% |
|||||
| Finance leases |
|
433,014 |
|
360,429 |
|
24,015 |
|
20,313 |
7.41 |
% |
7.54 |
% |
|||||
| Consumer loans |
|
1,895,308 |
|
1,705,150 |
|
156,972 |
|
145,459 |
11.06 |
% |
11.41 |
% |
|||||
| Total loans (4) (5) |
|
9,472,189 |
|
8,992,156 |
|
452,179 |
|
457,600 |
6.38 |
% |
6.80 |
% |
|||||
| Total interest-earning assets | $ |
13,331,570 |
$ |
11,647,976 |
$ |
510,015 |
$ |
523,498 |
5.11 |
% |
6.01 |
% |
|||||
| Interest-bearing liabilities: | |||||||||||||||||
| Brokered CDs | $ |
393,038 |
$ |
511,567 |
$ |
6,572 |
$ |
8,312 |
2.23 |
% |
2.17 |
% |
|||||
| Other interest-bearing deposits |
|
7,330,643 |
|
6,166,594 |
|
46,167 |
|
48,624 |
0.84 |
% |
1.05 |
% |
|||||
| Loans payable |
|
11,241 |
|
- |
|
21 |
|
- |
0.25 |
% |
- |
|
|||||
| Other borrowed funds |
|
472,715 |
|
298,277 |
|
10,311 |
|
12,699 |
2.91 |
% |
5.69 |
% |
|||||
| FHLB advances |
|
522,172 |
|
740,513 |
|
8,656 |
|
11,490 |
2.21 |
% |
2.07 |
% |
|||||
| Total interest-bearing liabilities | $ |
8,729,809 |
$ |
7,716,951 |
$ |
71,727 |
$ |
81,125 |
1.10 |
% |
1.41 |
% |
|||||
| Net interest income | $ |
438,288 |
$ |
442,373 |
|||||||||||||
| Interest rate spread | 4.01 |
% |
4.60 |
% |
|||||||||||||
| Net interest margin | 4.39 |
% |
5.08 |
% |
|||||||||||||
| 1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of |
|||||||||||||||||
| 2- Government obligations include debt issued by government-sponsored agencies. | |||||||||||||||||
| 3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes. | |||||||||||||||||
| 4- Average loan balances include the average of non-performing loans. | |||||||||||||||||
| 5- Interest income on loans includes |
|||||||||||||||||
Table 4 – Non-Interest Income
| Quarter Ended | Nine-Month Period Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| (In thousands) |
|
2020 |
|
2020 |
|
|
2019 |
|
|
2020 |
|
2019 |
|
|||||||
| Service charges on deposit accounts | $ |
5,848 |
$ |
4,475 |
|
$ |
6,108 |
|
$ |
16,280 |
$ |
17,711 |
|
|||||||
| Mortgage banking activities |
|
7,099 |
|
3,686 |
|
|
4,396 |
|
|
14,573 |
|
12,418 |
|
|||||||
| Insurance income |
|
1,473 |
|
1,381 |
|
|
1,983 |
|
|
7,436 |
|
8,258 |
|
|||||||
| Other operating income |
|
10,132 |
|
11,505 |
|
|
9,411 |
|
|
29,263 |
|
28,277 |
|
|||||||
| Non-interest income before net gain on sales of investments and gain on early extinguishment of debt |
|
24,552 |
|
21,047 |
|
|
21,898 |
|
|
67,552 |
|
66,664 |
|
|||||||
| Net gain (loss) on sales of investments |
|
5,288 |
|
(155 |
) |
|
- |
|
|
13,380 |
|
- |
|
|||||||
| OTTI on debt securities |
|
- |
|
- |
|
|
(497 |
) |
|
- |
|
(497 |
) |
|||||||
| Net gain (loss) on investments |
|
5,288 |
|
(155 |
) |
|
(497 |
) |
|
13,380 |
|
(497 |
) |
|||||||
| Gain on early extinguishment of debt |
|
94 |
|
- |
|
|
- |
|
|
94 |
|
- |
|
|||||||
$ |
29,934 |
$ |
20,892 |
|
$ |
21,401 |
|
$ |
81,026 |
$ |
66,167 |
|
||||||||
Table 5 – Non-Interest Expenses
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||
| (In thousands) |
|
2020 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||
| Employees' compensation and benefits | $ |
43,063 |
$ |
39,532 |
$ |
41,409 |
$ |
125,454 |
$ |
121,518 |
|||||||
| Occupancy and equipment |
|
19,064 |
|
16,376 |
|
15,129 |
|
50,567 |
|
47,018 |
|||||||
| Deposit insurance premium |
|
1,630 |
|
1,436 |
|
1,465 |
|
4,588 |
|
4,645 |
|||||||
| Other insurance and supervisory fees |
|
1,389 |
|
1,129 |
|
960 |
|
3,605 |
|
2,677 |
|||||||
| Taxes, other than income taxes |
|
4,510 |
|
3,577 |
|
3,904 |
|
11,967 |
|
11,461 |
|||||||
| Collections, appraisals and other credit related fees |
|
1,262 |
|
1,387 |
|
1,797 |
|
4,345 |
|
5,460 |
|||||||
| Outsourcing technology services |
|
6,949 |
|
7,672 |
|
6,206 |
|
21,450 |
|
17,524 |
|||||||
| Other professional fees |
|
3,352 |
|
2,909 |
|
3,872 |
|
9,529 |
|
10,872 |
|||||||
| Credit and debit card processing expenses |
|
4,859 |
|
3,938 |
|
4,764 |
|
12,747 |
|
12,738 |
|||||||
| Business promotion |
|
3,046 |
|
2,314 |
|
4,004 |
|
8,982 |
|
11,650 |
|||||||
| Communications |
|
2,246 |
|
1,852 |
|
1,834 |
|
5,975 |
|
5,300 |
|||||||
| Net loss on OREO operations |
|
1,019 |
|
811 |
|
2,578 |
|
3,018 |
|
11,364 |
|||||||
| Merger and restructuring costs |
|
10,441 |
|
2,902 |
|
592 |
|
14,188 |
|
592 |
|||||||
| Other |
|
4,678 |
|
3,951 |
|
4,319 |
|
13,063 |
|
13,335 |
|||||||
| Total | $ |
107,508 |
$ |
89,786 |
$ |
92,833 |
$ |
289,478 |
$ |
276,154 |
|||||||
Table 6 – Selected Balance Sheet Data
| (In thousands) | As of | ||||||||
| September 30, | June 30, | December 31, | |||||||
|
2020 |
|
2020 |
|
2019 |
||||
| Balance Sheet Data: | |||||||||
| Loans, including loans held for sale | $ |
11,895,945 |
$ |
9,405,202 |
$ |
9,041,682 |
|||
| Allowance for credit losses for loans and finance leases |
|
384,718 |
|
319,297 |
|
155,139 |
|||
| Money market and investment securities, net of allowance for credit losses for debt securities |
|
3,621,902 |
|
2,986,390 |
|
2,398,157 |
|||
| Intangible assets |
|
78,294 |
|
34,246 |
|
35,671 |
|||
| Deferred tax asset, net |
|
347,543 |
|
306,175 |
|
264,842 |
|||
| Total assets |
|
18,659,768 |
|
14,096,406 |
|
12,611,266 |
|||
| Deposits |
|
15,202,898 |
|
10,696,686 |
|
9,348,429 |
|||
| Borrowings |
|
973,762 |
|
974,150 |
|
854,150 |
|||
| Total preferred equity |
|
36,104 |
|
36,104 |
|
36,104 |
|||
| Total common equity |
|
2,143,851 |
|
2,125,460 |
|
2,185,205 |
|||
| Accumulated other comprehensive income, net of tax |
|
45,327 |
|
53,270 |
|
6,764 |
|||
| Total equity |
|
2,225,282 |
|
2,214,834 |
|
2,228,073 |
|||
Table 7 – Loan Portfolio
Composition of the loan portfolio including loans held for sale at period-end.
| (In thousands) | As of | |||||||||
| September 30, | June 30, | December 31, | ||||||||
|
2020 |
|
2020 |
|
2019 |
|||||
| Residential mortgage loans | $ |
3,636,713 |
$ |
2,890,301 |
$ |
2,933,773 |
||||
| Commercial loans: | ||||||||||
| Construction loans |
|
191,356 |
|
177,777 |
|
111,317 |
||||
| Commercial mortgage loans |
|
2,220,277 |
|
1,455,083 |
|
1,444,586 |
||||
| Commercial and Industrial loans |
|
3,226,843 |
|
2,547,812 |
|
2,230,876 |
||||
| Commercial loans |
|
5,638,476 |
|
4,180,672 |
|
3,786,779 |
||||
| Finance leases |
|
458,381 |
|
438,851 |
|
414,532 |
||||
| Consumer loans |
|
2,113,705 |
|
1,856,392 |
|
1,867,121 |
||||
| Loans held for investment |
|
11,847,275 |
|
9,366,216 |
|
9,002,205 |
||||
| Loans held for sale |
|
48,670 |
|
38,986 |
|
39,477 |
||||
| Total loans | $ |
11,895,945 |
$ |
9,405,202 |
$ |
9,041,682 |
||||
Table 8 – Loan Portfolio by Geography
| (In thousands) | As of September 30, 2020 | ||||||||||||
| Puerto Rico | Virgin Islands | United States | Consolidated | ||||||||||
| Residential mortgage loans | $ |
2,881,533 |
$ |
218,826 |
$ |
536,354 |
$ |
3,636,713 |
|||||
| Commercial loans: | |||||||||||||
| Construction loans |
|
58,555 |
|
11,451 |
|
121,350 |
|
191,356 |
|||||
| Commercial mortgage loans |
|
1,772,648 |
|
61,633 |
|
385,996 |
|
2,220,277 |
|||||
| Commercial and Industrial loans |
|
2,154,786 |
|
132,809 |
|
939,248 |
|
3,226,843 |
|||||
| Commercial loans |
|
3,985,989 |
|
205,893 |
|
1,446,594 |
|
5,638,476 |
|||||
| Finance leases |
|
458,381 |
|
- |
|
- |
|
458,381 |
|||||
| Consumer loans |
|
2,032,421 |
|
51,158 |
|
30,126 |
|
2,113,705 |
|||||
| Loans held for investment |
|
9,358,324 |
|
475,877 |
|
2,013,074 |
|
11,847,275 |
|||||
| Loans held for sale |
|
39,958 |
|
- |
|
8,712 |
|
48,670 |
|||||
| Total loans | $ |
9,398,282 |
$ |
475,877 |
$ |
2,021,786 |
$ |
11,895,945 |
|||||
| (In thousands) | As of June 30, 2020 | ||||||||||||
| Puerto Rico | Virgin Islands | United States | Consolidated | ||||||||||
| Residential mortgage loans | $ |
2,117,708 |
$ |
222,581 |
$ |
550,012 |
$ |
2,890,301 |
|||||
| Commercial loans: | |||||||||||||
| Construction loans |
|
51,294 |
|
11,512 |
|
114,971 |
|
177,777 |
|||||
| Commercial mortgage loans |
|
1,022,185 |
|
62,600 |
|
370,298 |
|
1,455,083 |
|||||
| Commercial and Industrial loans |
|
1,475,110 |
|
131,419 |
|
941,283 |
|
2,547,812 |
|||||
| Commercial loans |
|
2,548,589 |
|
205,531 |
|
1,426,552 |
|
4,180,672 |
|||||
| Finance leases |
|
438,851 |
|
- |
|
- |
|
438,851 |
|||||
| Consumer loans |
|
1,771,659 |
|
51,163 |
|
33,570 |
|
1,856,392 |
|||||
| Loans held for investment |
|
6,876,807 |
|
479,275 |
|
2,010,134 |
|
9,366,216 |
|||||
| Loans held for sale |
|
30,525 |
|
- |
|
8,461 |
|
38,986 |
|||||
| Total loans | $ |
6,907,332 |
$ |
479,275 |
$ |
2,018,595 |
$ |
9,405,202 |
|||||
| (In thousands) | As of December 31, 2019 | ||||||||||||
| Puerto Rico | Virgin Islands | United States | Consolidated | ||||||||||
| Residential mortgage loans | $ |
2,136,818 |
$ |
230,769 |
$ |
566,186 |
$ |
2,933,773 |
|||||
| Commercial loans: | |||||||||||||
| Construction loans |
|
36,102 |
|
12,144 |
|
63,071 |
|
111,317 |
|||||
| Commercial mortgage loans |
|
1,012,523 |
|
67,377 |
|
364,686 |
|
1,444,586 |
|||||
| Commercial and Industrial loans |
|
1,285,594 |
|
105,819 |
|
839,463 |
|
2,230,876 |
|||||
| Commercial loans |
|
2,334,219 |
|
185,340 |
|
1,267,220 |
|
3,786,779 |
|||||
| Finance leases |
|
414,532 |
|
- |
|
- |
|
414,532 |
|||||
| Consumer loans |
|
1,776,675 |
|
49,924 |
|
40,522 |
|
1,867,121 |
|||||
| Loans held for investment |
|
6,662,244 |
|
466,033 |
|
1,873,928 |
|
9,002,205 |
|||||
| Loans held for sale |
|
33,709 |
|
350 |
|
5,418 |
|
39,477 |
|||||
| Total loans | $ |
6,695,953 |
$ |
466,383 |
$ |
1,879,346 |
$ |
9,041,682 |
|||||
Table 9 – Non-Performing Assets
| As of | |||||||||||||
| (Dollars in thousands) | September 30, | June 30, | December 31, | ||||||||||
|
2020 |
|
|
2020 |
|
|
2019 |
|
|||||
| Nonaccrual loans held for investment: | |||||||||||||
| Residential mortgage | $ |
122,797 |
|
$ |
122,249 |
|
$ |
121,408 |
|
||||
| Commercial mortgage |
|
29,651 |
|
|
34,109 |
|
|
40,076 |
|
||||
| Commercial and Industrial |
|
20,882 |
|
|
19,995 |
|
|
18,773 |
|
||||
| Construction |
|
13,090 |
|
|
9,574 |
|
|
9,782 |
|
||||
| Consumer and Finance leases |
|
14,870 |
|
|
18,047 |
|
|
20,629 |
|
||||
| Total nonaccrual loans held for investment |
|
201,290 |
|
|
203,974 |
|
|
210,668 |
|
||||
| OREO |
|
89,049 |
|
|
96,319 |
|
|
101,626 |
|
||||
| Other repossessed property |
|
3,006 |
|
|
3,554 |
|
|
5,115 |
|
||||
| Total non-performing assets, excluding nonaccrual loans held for sale | $ |
293,345 |
|
$ |
303,847 |
|
$ |
317,409 |
|
||||
| Nonaccrual loans held for sale |
|
- |
|
|
- |
|
|
- |
|
||||
| Total non-performing assets, including nonaccrual loans held for sale (1) | $ |
293,345 |
|
$ |
303,847 |
|
$ |
317,409 |
|
||||
| Past-due loans 90 days and still accruing (2) | $ |
160,066 |
|
$ |
164,519 |
|
$ |
135,490 |
|
||||
| Allowance for credit losses on loans | $ |
384,718 |
|
$ |
319,297 |
|
$ |
155,139 |
|
||||
| Allowance for credit losses on loans to total nonaccrual loans held for investment |
|
191.13 |
% |
|
156.54 |
% |
|
73.64 |
% |
||||
| Allowance for credit losses on loans to total nonaccrual loans held for investment, excluding residential real estate loans |
|
490.13 |
% |
|
390.70 |
% |
|
173.81 |
% |
||||
| (1) Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as "units of account" both at the time of adoption of ASC 326 and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of ASC 326 and will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The amortized cost of such loans as of September 30, 2020, June 30, 2020, and December 31, 2019 amounted to |
|||||||||||||
| (2) These include loans rebooked, which were previously pooled into GNMA securities amounting to |
|||||||||||||
Table 10 – Non-Performing Assets by Geography
| As of | |||||||||||||
| (In thousands) | September 30, | June 30, | December 31, | ||||||||||
2020 |
2020 |
2019 |
|||||||||||
| Puerto Rico: | |||||||||||||
| Nonaccrual loans held for investment: | |||||||||||||
| Residential mortgage | $ |
98,473 |
$ |
97,715 |
$ |
97,214 |
|||||||
| Commercial mortgage |
|
18,291 |
|
22,354 |
|
23,963 |
|||||||
| Commercial and Industrial |
|
18,464 |
|
18,283 |
|
16,155 |
|||||||
| Construction |
|
5,430 |
|
1,910 |
|
2,024 |
|||||||
| Finance leases |
|
879 |
|
1,521 |
|
1,354 |
|||||||
| Consumer |
|
13,290 |
|
15,480 |
|
18,129 |
|||||||
| Total nonaccrual loans held for investment |
|
154,827 |
|
157,263 |
|
158,839 |
|||||||
| OREO |
|
83,712 |
|
90,688 |
|
96,585 |
|||||||
| Other repossessed property |
|
2,790 |
|
3,404 |
|
4,810 |
|||||||
| Total non-performing assets, excluding nonaccrual loans held for sale | $ |
241,329 |
$ |
251,355 |
$ |
260,234 |
|||||||
| Nonaccrual loans held for sale |
|
- |
|
- |
|
- |
|||||||
| Total non-performing assets, including nonaccrual loans held for sale (1) | $ |
241,329 |
$ |
251,355 |
$ |
260,234 |
|||||||
| Past-due loans 90 days and still accruing (2) | $ |
157,829 |
$ |
161,959 |
$ |
129,463 |
|||||||
| Virgin Islands: | |||||||||||||
| Nonaccrual loans held for investment: | |||||||||||||
| Residential mortgage | $ |
9,824 |
$ |
10,295 |
$ |
10,903 |
|||||||
| Commercial mortgage |
|
11,360 |
|
11,755 |
|
16,113 |
|||||||
| Commercial and Industrial |
|
1,425 |
|
1,443 |
|
2,303 |
|||||||
| Construction |
|
7,660 |
|
7,664 |
|
7,758 |
|||||||
| Consumer |
|
229 |
|
204 |
|
467 |
|||||||
| Total nonaccrual loans held for investment |
|
30,498 |
|
31,361 |
|
37,544 |
|||||||
| OREO |
|
5,273 |
|
5,420 |
|
4,909 |
|||||||
| Other repossessed property |
|
143 |
|
119 |
|
146 |
|||||||
| Total non-performing assets, excluding nonaccrual loans held for sale | $ |
35,914 |
$ |
36,900 |
$ |
42,599 |
|||||||
| Nonaccrual loans held for sale |
|
- |
|
- |
|
- |
|||||||
| Total non-performing assets, including nonaccrual loans held for sale | $ |
35,914 |
$ |
36,900 |
$ |
42,599 |
|||||||
| Past-due loans 90 days and still accruing | $ |
1,986 |
$ |
2,310 |
$ |
5,898 |
|||||||
| United States: | |||||||||||||
| Nonaccrual loans held for investment: | |||||||||||||
| Residential mortgage | $ |
14,500 |
$ |
14,239 |
$ |
13,291 |
|||||||
| Commercial mortgage |
|
- |
|
- |
|
- |
|||||||
| Commercial and Industrial |
|
993 |
|
269 |
|
315 |
|||||||
| Construction |
|
- |
|
- |
|
- |
|||||||
| Consumer |
|
472 |
|
842 |
|
679 |
|||||||
| Total nonaccrual loans held for investment |
|
15,965 |
|
15,350 |
|
14,285 |
|||||||
| OREO |
|
64 |
|
211 |
|
132 |
|||||||
| Other repossessed property |
|
73 |
|
31 |
|
159 |
|||||||
| Total non-performing assets, excluding nonaccrual loans held for sale | $ |
16,102 |
$ |
15,592 |
$ |
14,576 |
|||||||
| Nonaccrual loans held for sale |
|
- |
|
- |
|
- |
|||||||
| Total non-performing assets, including nonaccrual loans held for sale | $ |
16,102 |
$ |
15,592 |
$ |
14,576 |
|||||||
| Past-due loans 90 days and still accruing | $ |
251 |
$ |
250 |
$ |
129 |
|||||||
| (1) Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as "units of account" both at the time of adoption of ASC 326 and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of ASC 326 and will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The amortized cost of such loans as of September 30, 2020, June 30, 2020, and December 31, 2019 amounted to |
|||||||||||||
| (2) These include loans rebooked, which were previously pooled into GNMA securities amounting to |
|||||||||||||
Table 11 – Allowance for Credit Losses for Loans and Finance Leases
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||||||||||
| (Dollars in thousands) | September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|||||||||
| Allowance for credit losses on loans and finance leases, beginning balance | $ |
319,297 |
|
$ |
292,774 |
|
$ |
172,011 |
|
$ |
155,139 |
|
$ |
196,362 |
|
||||||||
| Impact of adopting ASC 326 |
|
- |
|
|
- |
|
|
- |
|
|
81,165 |
|
|
- |
|
||||||||
| Allowance for credit losses on loans and finance leases, beginning balance after CECL adoption |
|
319,297 |
|
|
292,774 |
|
|
172,011 |
|
|
236,304 |
|
|
196,362 |
|
||||||||
| Provision for credit losses on loans and finance leases |
|
48,078 |
|
|
36,408 |
|
|
7,398 |
|
|
158,531 |
|
|
31,752 |
|
(1 |
) |
||||||
| Initial allowance on PCD loans |
|
28,744 |
|
|
- |
|
|
- |
|
|
28,744 |
|
|
- |
|
||||||||
| Net (charge-offs) recoveries of loans: | |||||||||||||||||||||||
| Residential mortgage |
|
(2,283 |
) |
|
(1,794 |
) |
|
(4,414 |
) |
|
(7,856 |
) |
|
(14,149 |
) |
||||||||
| Commercial mortgage |
|
(3,104 |
) |
|
25 |
|
|
(717 |
) |
|
(3,163 |
) |
|
(14,587 |
) |
||||||||
| Commercial and Industrial |
|
(70 |
) |
|
5 |
|
|
1,439 |
|
|
(75 |
) |
|
(3,860 |
) |
||||||||
| Construction |
|
36 |
|
|
(54 |
) |
|
211 |
|
|
6 |
|
|
282 |
|
||||||||
| Consumer and finance leases |
|
(5,980 |
) |
|
(8,067 |
) |
|
(10,353 |
) |
|
(27,773 |
) |
|
(30,225 |
) |
||||||||
| Net charge-offs |
|
(11,401 |
) |
|
(9,885 |
) |
|
(13,834 |
) |
|
(38,861 |
) |
|
(62,539 |
) |
||||||||
| Allowance for credit losses on loans and finance leases, end of period | $ |
384,718 |
|
$ |
319,297 |
|
$ |
165,575 |
|
$ |
384,718 |
|
$ |
165,575 |
|
||||||||
| Allowance for credit losses on loans and finance leases to period end total loans held for investment |
|
3.25 |
% |
|
3.41 |
% |
|
1.85 |
% |
|
3.25 |
% |
|
1.85 |
% |
||||||||
| Net charge-offs (annualized) to average loans outstanding during the period |
|
0.45 |
% |
|
0.43 |
% |
|
0.61 |
% |
|
0.55 |
% |
|
0.93 |
% |
||||||||
| Provision for credit losses on loans and finance leases to net charge-offs during the period | 4.22x | 3.68x | 0.53x | 4.08x | 0.51x | ||||||||||||||||||
| Provision for credit losses on loans and finance leases to net charge-offs during the period, excluding effect of the hurricane-related qualitative reserve releases inthe first nine months of 2019 | 4.22x | 3.68x | 0.53x | 4.08x | 0.61x | ||||||||||||||||||
| (1) Net of a |
|||||||||||||||||||||||
Table 12 – Net Charge-Offs to Average Loans
| Nine-Month | ||||||||||
| Period Ended | Year Ended | |||||||||
| September 30, 2020 | December 31, | December 31, | December 31, | December 31, | ||||||
| (annualized) | 2019 |
2018 |
2017 |
2016 |
||||||
| Residential mortgage |
|
|
|
|
|
|||||
| Commercial mortgage |
|
|
|
|
|
|||||
| Commercial and Industrial |
|
|
|
|
|
|||||
| Construction |
- |
- |
|
|
|
|||||
| Consumer and finance leases |
|
|
|
|
|
|||||
| Total loans |
|
|
|
|
|
|||||
