Q3 2021 First Bancorp Earnings Call
Now the fully integrated organizational with expanded sales resources and origination capacity will allow us to continue growing market share at growth basically all products and services.
Now going forward, our full dedication of resources would be geared towards growing the franchise and servicing the clients.
In terms of our Puerto Rico franchise, we have now the second largest market share among banks across all products and channels.
It would allow us to definitely better serve our clients and communities with additional opportunity for organic growth.
Our focus on digital solutions have proven effective more clients continued to adopt our digital experience as online banking users grew by 12% during the quarter and approximately 40% of all deposits, where it's captured through the data and self service channels.
Our expanded Ddos functionality. These includes not only transactions, but the ability to process mortgages credit cards personal loans applications through our corporate board.
And on the commercial front.
Loan forgiveness requests for.
Toward the PPP loans that are still pending.
As we look ahead over the next years definitely increase efforts and capabilities will be added towards enhancing the existing digital offerings.
And also developing new functionalities focus on the ease of use and best in class customer experience.
But also we will continue to optimize our branch network across the islands.
On the macro front.
We're pleased to see improvement in the economic backdrop within our three operating regions.
We see it in Brooklyn in Puerto Rico, including the obviously all the stimulus in the Virgin Islands.
Miller similar investments also made in reconstruction and obviously, Florida economy continues to be.
Very very solid.
Both pandemic and these are really funding continue to support the economic activity.
It's important to also highlight that Puerto Rico reach one of the highest vaccination rates of any stated and.
You will see a reduction.
This has led to an accelerate the reopening of the economy.
The real improvement in the tourism.
And an overall improvement in the business environment and consumer confidence. This should result in increased loan demand.
We're also optimistic I have to say about the resolution of the Puerto Rico bankruptcy settlement in the near future, which has been going on for quite some years now.
So let's move now to slide five to review some of the financials.
During the quarter, we generated $75 7 million and net income 36.
<unk> per share.
And I think importantly, a record 103 million points $103 6 million to be exact in pretax pre provision income clearly, reflecting the benefit of our expanded franchise.
The efficiency ratio continued to trend down to 53% during the quarter compared to 60% registered during the second quarter.
A very important asset quality metrics continued to improve during the quarter, nor nonperforming asset reached a decade low of 81% of total assets.
The reduction in <unk> was primarily driven by by the risking sale of $52 million in NOLA residential mortgages.
Also.
There was the sale of our <unk>, which were important during the quarter.
NPL sales drove the ACL ratio down also a bit to $2 59 for the quarter, but also that we're re leases associated with improvement in the macroeconomic factors.
Finally on the capital front I think we continue to make significant progress in our capital plan and continued to return capital to our shareholders. During the quarter. We completed the repurchase of $4 2 million shares amounting to $50 million year to date.
<unk> has reached $150 million repurchases also we announced the redemption of the $36 $1 million of the preferred stock will happen in this fourth quarter.
And as we announced on Friday, a week with our common dividend by 43% to 10 cents per share.
All of these capital actions are in parallel with the strength of our balance sheet and our commitment to increase shareholder value.
Please let's move to slide six I would like to cover some details on the loans and deposits.
Lower in Asia.
We consider their healthy at $1 2 billion, but they are definitely still short of our goals and thats really the focus of the management team there.
The loan portfolio decreased largely driven by the effect of the reduction of $130 million.
SBA PPP loans and the mortgage de risking sale of $52 million also as we have mentioned before our mortgage portfolio strategy is focus on the conforming paper, which will continue to see some some decrease in the loans and the.
Mortgage loans consumer loans grew nicely and commercial excluding ETB our final stabilizing.
Our focus will continue to be centered around consumer and commercial growth and thus the key objective of the management team.
We have to say that Gregory managed speaking up as government stimulus subsides, and we expect that actually to continue improving during this quarter in 2022 as economic will reopen and large scale disaster relief related products begin to emerge.
Core deposits continue to grow nicely, excluding brokered and government core deposit rates and an increase of $288 million during the quarter. So liquidity is still out there.
We're all trying to define how much is coming from.
We'll now with those comments I will turn the call to Orlando to provide you more details on the financials. Thanks Gil.
Good morning, everyone.
They provide some details I'll cover some other items here again not to be repetitive, but as he mentioned net income for the quarter was $75 7 million, which is 36 a share.
Compared to <unk> 33.
Over the last quarters.
2020 $170 million.
As credit quality components continues to behave extremely well for the quarter.
And as Aurelio also mentioned their projected macroeconomic variables.
Also continued to show improvement.
As a result, you saw it.
We had a net benefit of $12 1 million in the provision for credit losses.
Is lower than the $26 2 million, we had last quarter, but still.
<unk>.
The after tax benefit on the provision at approximately four <unk> per share last quarter was about <unk> <unk> per share.
Another significant component of results for the quarter.
Also as Aurelio mentioned the completion in July over last spending system conversion.
This resulted in a reduction in merger and restructuring costs to $2 3 million from what we had last quarter, which was $11 million.
If we look at our net interest income.
Was basically.
Similar to last quarter $184 7 million.
Our margin was down to $3 60 from 381.
Most of it has to do with the mix of interest earning assets.
That has led to this reduction.
Look at.
The components on a GAAP basis, the combined yield on the loan portfolio was 633.
For the quarter, which is very similar to a <unk> 34, we had last quarter. Our loans are now 55% of average earning assets.
<unk> to 59% last quarter.
Money market and investment securities on the other hand, now represent 45% of average earning assets.
Versus 41% last quarter.
The yield on this instrument, it's slightly down from 96 basis points in the second quarter to 92 basis points now.
Multi market and short term investments make up a large chunk of this component and we have kept their portfolios more on a shorter term based on where the market yields are now and also obviously the expectations that there could be some increases in the near term.
We've continued to work under the on the cost of deposits our cost of interest bearing deposits down.
Three basis points to 33 basis points.
And we have also.
To grow on the noninterest bearing side, which is obviously helps the margins, but not to compensate for the mix for the change in mix in the assets.
If we look at our non interest income.
Remain relatively flat.
Improvements in credit and debit card fees ATM fees and Pos transactions.
So it had some reactions on on revenues for mortgage banking.
Service charges on deposits.
This one mostly related to the process of the conversion.
So we're back to normalized levels now.
On the expense side, which which is large.
Large chip component that we had.
<unk> expenses were $114 million, which is 16 million lower than last quarter.
Merger and Covid related expenses were $2 9 million this quarter versus $12 9 million last quarter.
Up $9 $2 million of this reduction.
If we exclude all these items expenses were $111 million compared to $118 million last quarter.
But we did have.
Couple of.
Thanks.
We don't have typically every quarter.
On one side on one hand, we had a $1.
$4 million in expense reimbursements and incentives, we received from a debit and credit card processing agreement.
And we had a $2 3 million in profits on Oreo Oreo properties.
What we've seen in the market as our sales prices have improved significantly.
Salting and gains on the disposition of other real estate owned properties.
That exceed the operating cost we had on managing all those properties.
These gains do include however, an 800000 dollar profit we had on the disposition of.
27 million commercial Oreo property that we had on the books for <unk>.
At some time.
If we normalize for some of these items expenses were talking our approximately 150 million for this quarter.
What what we have seen is that we're running a much higher level of vacant positions that we normally would have.
Similar to what's happening in the U S. We have experienced difficulties in hiring.
Several positions.
Although I can say that the trends in the last few weeks are encouraging but are we still working on on reaching normalized vacancy levels.
Once we.
Reached those normal vacancy levels and completes all of the technology projects that are underway.
I would have to say that we still believe that expenses will be on that range that we had mentioned before the 117 to 119, but obviously, it's not going to happen immediately it's going to.
It's going to take a little bit of time to fill out those those positions.
On the asset quality Aurelio made reference to we continue to achieve significant improvement nonperforming assets decreased by $83 million in the quarter.
We're now at $172 million from the $2 $50 million to $255 million, we had last quarter.
NPA, notwithstanding 81 basis points of total assets again first time under 1% for a very very long time.
The decrease was primarily primarily.
The bulk sale of the $52 million in residential mortgage loans.
And debt repayment of two large residential mortgage loans that are at $3 9 million.
The result for the mortgage side was pretty good in the quarter. We also had the disposition of the commercial Oreo property I just mentioned for the $21 million built into some of that reduction.
That obviously.
It's compensated also by the fact that we are.
The inflows to nonperforming continue to below we remained basically unchanged from the second quarter at $17 million.
The allowance.
For credit losses, as Aurelio mentioned with $300 million $40 million lower than last quarter.
Just on loans and finance leases was 280 $288 million, which is $37 million lower than what we had last quarter.
The reduction in the allowance reflects the charge offs that we're taking on the nonperforming residential mortgage loans.
Were sold as well as the improvement trends that we continue to project one macroeconomic variables.
All the variables that are used for to calculate the allowance for credit losses.
But also point out that the charge offs that were taken on.
Residential mortgage loan had been substantially reserved in prior quarters, so minimal impact.
While in this quarter results.
The ratio of the allowance is now at $2 59.
Versus 2005, we had last quarter and we exclude PPP loans on what's left of the BBB, It's approximately 264.
It's still a healthy healthy coverage, we have on the loans.
On the capital front just to summarize again.
We continue with execution of our plan.
The repurchase program last quarter.
Yes.
What what's left we will continue with the repurchase but also if he made reference to we will be redeeming the $36 million that remain outstanding in preferred shares during the fourth quarter.
We have already announced the increase in the common dividend.
<unk> per share per quarter also starting in the fourth quarter.
The dividends on the preferred.
Represent approximately $2 7 million per year, which would be around one <unk> based on carrier number of chairs.
Which would improve.
Earnings per share for common shareholder.
Ratios are continuing to be a capital ratios continued to be high.
Even with the execution of our capital strategies, but a strong strong earnings are maintaining this capital ratios significantly above the well capitalized levels.
With that I would like to open the call for questions.
Okay.
Thank you if you have a question. Please register this now by pressing star followed by one on your telephone keypad when preparing to ask a question. Please ensure that your microphone is unmated likely.
Okay.
Yes.
Our first question today comes from Alex <unk> from Piper Sandler.
Alex Your line is now open.
Thank you and good morning, guys.
Good morning, Alex.
First off I wanted to hone in a little bit on the comment you made are really in your prepared remarks that credit demand is picking up.
And you expect that to continue if you can give us a little bit more specifics.
I guess I'm, assuming you're talking mostly about commercial and maybe also construction.
Construction, but maybe if you can give us some sort of just a little bit more to go on in terms of what you mean by that commentary.
But when you obviously.
Quiddity than the consumer also started to subside a bit and when you look at personal consumer loans and credit cards.
We are seeing.
In recent months it grew in September.
<unk>.
Our activity.
Also when you look at the pipeline with small loans.
That actually is improving.
I have to say that they buy them on the commercial side.
And construction.
It also continues to show improvement.
As you know it takes time from from from pipeline to closing.
If I have to say compare that five nine to where we were in the first quarter. We are overall in a better place in all the commercial products itself.
To continue very strong.
And I think that's obviously, even with the challenges on the on the inventory.
Obviously, we have a very focused strategy like we had before and we have been achieving portfolio growth and market share growth in that business for a couple of years now that we expect that to continue to be the case based on how we're running the business and how we're executing our strategy and then.
When you look at when you look at mortgage is.
That obviously it.
It's too important component rates, which drive the refinancing volume.
Are still high.
You should start to come down as long term rates move up.
But on the other hand, it's really our thrive <unk>.
Two to continue to focus on the on the origination side on the conforming.
I have to say that.
The repayment.
Mortgages, it's higher than we estimated when you look at the year numbers.
Which also contributed to some of the contraction of our loan portfolio.
But budd.
A lot going on.
New investments new investors coming into the market.
So we feel very optimistic that that will translate into into loan demand.
That's great.
I guess two more questions kind of related one in terms of line Utilizations I think last time, we spoke.
Running well below normalized levels have you seen started to see those pick up or any indication that those would be picking up anytime soon.
Some of it happened late in the quarter Bud dialogue about it started to pick up.
With that Nicole.
Okay got.
Got it the other way.
The wildcard is illiquidity.
We are really monitoring the liquidity is moving our focus is not in government deposits. It's really in the core businesses. So so we're dedicating a little time to make sure that we monitor individual clients.
Type of products on the deposit front, so we get a better forecast of when.
Liquidity overall will subside or not and then there is also a lot of funds coming in.
Into the into the construction sector, which which will capture some of those too.
Alright, and then the other pieces the Paydowns, which are still elevated and I know you had some large pay down debt.
<unk> worked against your origination volume this quarter do you have any line of sight onto any larger paydowns that are coming in the next couple of months.
No we monitor or we wanted to refinance that obviously some of that also is part of the portfolio that we have in Florida participation. So the refi activity is linked to the RFP activity on the rates.
The more the rates continue to move up the less pay downs and the less refinancing activity, we will see in the commercial market definitely.
If there is a reduction versus what we had in the first two quarters.
When you when you look at the beta that we had in the third quarter.
And we don't have anything on the horizon that we say to come in this quarter.
To be honest with you.
Sometimes they come as a surprise to so.
To be realistic to grow revenue.
Yes.
Okay, perfect and then.
Switching gears, a little bit to the bankruptcy and sort of the macro we've seen some headlines I think the Senate has postponed their vote on the new debt until Tomorrow. I was wondering if you just had any line of sight or any more information on to how close to satisfy what why is there anything else you can kind of give us in terms of what.
And if you go off of other than the headlines on expectations for the bankruptcy.
Well there was a lot of local articles over the weekend.
Obviously, there is no perfect deal when youre dealing with bankruptcy.
But I think this is a balanced deal. This is a balanced deal that everybody has time to negotiate put their views.
We know there is an important hearing today with.
Members of.
Executive and also legislative and the fiscal board with the judge So I have to say that we are optimistic that this should move forward.
We think it's a balanced deal for four and it's a great milestone in Puerto Rico could could achieve this in the short term and would probably been is the closest we've been.
With all the parties dedicating their time focus and effort in making efforts to get it done. So I think everyone. Here is trying to get it done it's Jeff.
Different views on how much goes where.
And how much it cost a little different.
NTT all are in this very complex negotiations, so I have to say that.
We haven't seen it closer to where it is today.
And Thats why we feel optimistic about it.
Okay. Thanks.
Final question for me just on capital as I think about the amounts are the sort of the pace of capital deployment by the buyback we.
We saw a 100 million in the second quarter $50 million in the third going into the fourth quarter.
I guess two questions. One is how should we think about the pace of capital deployment by the buyback and as part of that is the preferred redemption does that count towards the overall capital deployment plan.
That we could see a much lower level of buyback in the fourth quarters as a result of that $36 million being used towards that preferred redemption.
Yes.
I'm going to answer first yes, when we announced the REIT.
The buyback we did included $36 million borrowed at 300.
That answers that question our goal this quarter.
It is to try to reach 250 of their world 300, that's our goal.
Okay.
And then obviously, we'll move from there, but thats our goal this quarter.
It will include a 36 plus another set of another 60, something yes, that's our goal.
Okay.
Great. Thank you for taking my questions.
Thank you Alex.
Okay.
We currently have no further questions. So this now concludes today's call. Thank you everyone very much for joining us today and you may now disconnect your lines.
Thank you.
Thank you.
Yes.
Yes.
Okay.
Yes.
Okay.
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