Yahoo Finance First BanCorp. (NYSE:FBP) Q1 2024 Earnings Call Transcript
First BanCorp. (NYSE:FBP) Q1 2024 Earnings Call Transcript April 23, 2024
First BanCorp. misses on earnings expectations. Reported EPS is $ EPS, expectations were $0.38. FBP isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello everyone and welcome to First BanCorp's First Quarter 2024 Financial Results Call. My name is Seth and I'll be the operator for your call today. [Operator Instructions] I would now hand the floor over to Ramon Rodriguez to begin the call. Please go ahead when you're ready.
Ramon Rodriguez: Thank you, Seth. Good morning everyone and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the first quarter of 2024. Joining you today from First BanCorp are Aurelio Aleman, President and Chief Executive Officer; and Orlando Berges, Executive Vice President and Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's latest SEC filings.
The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.
Aurelio Aleman-Bermudez: Thank you, Ramon. Good morning to everyone and thanks for joining our earnings call today. Let's move to Page 4 of the slide to discuss the highlight. We're definitely very pleased to start the year with another quarter of a strong operating results. We posted a strong return asset of 1.56%, increase pre-tax pre-provision income to $111 million, and we continue to do what I consider a nice job managing our expenses, resulting in an efficiency ratio of around 52%. This results reflect obviously the hard work and dedication of our colleagues, and more importantly, the trust placed by our clients in all institutions as we continue to support their growth and progress. I like to thank all of them for the continuous support.
Consistent with guidance, we grew along by 4% on a linked-quarter basis, mostly driven by healthy commercial and our auto loan production, we do remain encouraged by commercial activity and loan opportunities available within both the Puerto Rico and the Florida region for the year. Total deposits were up by $47 million. We saw stabilization in overall core deposit balance during the quarter, but we did continue to see internal migration of customer seeking higher yields to time deposits, as expected into day rates. We do believe, however, that our balance sheet is very well-positioned to benefit from a higher for longer environment as we redeploy, lower yielding maturities investment into higher yielding assets, we should be margin-accretive for the year like the case of this quarter, those cash flows were reinvested into a loan portfolio.
MPAs were slightly up by $4 million to 269 basis points of total assets, primarily due to a negative migration with a $10 million case in the U.S. operation, partially offset by decreases in the OREO balances, we continue to have a high demand. In terms of capital, our game plan continues. We expect to return over 100% of earnings in the form of buybacks and dividends during the year, while registering the mid-single-digit loan growth for the -- for our main core businesses. During the quarter, we did increase our quarterly dividend by 14% to $0.16 per share and did repurchase $50 million in common share. We still have $100 million left in our current authorization. We are currently in the cycle of updating our capital plan and we expect to provide more color regarding additional future capital actions once we report our second quarter earnings during July.
Let's turn to Slide 5 to provide some additional highlights of the franchise. Well, it's clear that our financial result a function have a positive economic backdrop that we continue to experience in the island and our disciplined execution of strategic plan. As we said in the past, the unprecedented level of [Indiscernible] continues and is driving economic and construction activity in the island. For the first couple of months of the year, about $800 million on disaster relief funds were dispersed. When we look at the overall economy, labor market remains in good shape, consumer sentiment is positive, business activities is very stable or increasing, and tourism continues at record levels. In terms of the franchise, we continue to make our progress in our omnichannel strategy by lowering the size -- our size and the relationship-centric business model will achieve ideal balance between providing value-added advice to our clients, while enabling the most convenient digital and also self-service options.
We believe that to continue growing our fair share of the market we serve, the franchise investment mode be broad and continue with the goal of continuing to provide the best client experience whether it's on site delivery, or the retail channels, which we were invested in both. In terms of priorities, over the coming months, we were very excited to partner with cloud banking pioneer in [Indiscernible] to deliver a more modern and convenient commercial banking experience to our clients. This deployment will be complemented by efforts that I mentioned before -- multiyear efforts that we began in 2023 to migrate our core systems and mainframe to cloud-based and open systems environment. It's part of our technology modernization progress, which we feel very proud about it.
Our ample capital position and discipline expense management framework will continue to enable us to deliver value to our shareholders by investing wisely in the franchise, responsibly lowering our market share and returning excess capital when warranted. With that I will turn the call now to Orlando to go over more financial detail. Thank you.
Orlando Berges-Gonzalez: Good morning to all. Well, as Aurelio mentioned, we started the year posting strong operating results. We earned $73.5 million for the quarter, which is $0.44 per share. That compares to $79.5 million last quarter or $0.46 a share. This -- as he also mentioned translates into 1.56% return on average assets, which is strong return. Our adjusted pre-tax pre-provision increased slightly to $110.5 million from $110 million we had last quarter. That provision for credit losses on the quarter was $12.2 million, that’s $6.6 million lower than last quarter and that's largely driven by $9.5 million in recoveries we achieve on the sale of a previously charged-off consumer loans. Also during the quarter expenses were down $5.7 million, mostly, the FDIC deposit is special assessment that was recorded in the prior quarter as compared to what we booked this this quarter related to the same assessment.
The effective tax rate for the first quarter was 24.3%, which is very similar to 23.5% we achieved for 2023. In terms of net interest income, we saw a quarter where net interest income reached $196.5 million, which is relatively flat, just slightly down from last quarter. But this quarter had one less day that represented $1.1 million reduction in net interest income otherwise, we would have been up from last quarter. The loan portfolios grew $200 million on average and the yields on the portfolio also improved. That led to $5 million increase in net interest income, which was offset obviously by a number of days, which impacted by $1.8 million, the interest income on the loan portfolios for a net increase in the portfolios of $3.2 million.
The yield on earning assets went up 10 basis points during the quarter, part of it it's that change in mix that Aurelio was mentioning. In the case of our interest expense, the increase of our expenses was $5 million based on average balances and the 10 basis points increase in cost. But that was also offset by $800,000 impact on the number of days in the quarter. If we look at that increase in interest expense is mostly related to $178 million higher average balances of broker seat [ph] deposits, that increased expenses by $2.2 million. Also, customer time deposits grew on average $100 million and the costs increased 22 basis points for $2.1 million increase in interest expense. Time deposits as Aurelio also mentioned we expect to continue to increase.
Our brokered deposits are already down $58 million at the end of March as compared to where we were in December. During this quarter, we did experience an easing -- a mild easing on the pricing pressure on customer deposits. The cost of public funds increased 4 basis points during w the quarter and the cost of other interest-bearing deposits, excluding broker and time, decreased 1 basis point. We are now working on under the assumption that interest rates will stay higher for longer and will start to gradually come down in the latter part of the year, but not at the beginning of the year like we had assumed originally. That suggests that the cumulative deposit betas are at or very near what their peak levels should be assuming rates don't start to go up again.
As a result of all these changes, net interest margin for the quarter was 4.16%, which is up 2 basis points from last quarter. That's consistent with our guidance. We see margins starting to normalize as interest rates stabilize and deposit pricing stabilizes also, while we continue to redeploy the cash flows from the investment portfolio into attractive spreads that will improve the margin. Our most recent estimate shown by some portfolio cash flows over the next quarter to be approximately in the second quarter about $150 million and through the end of the year another $750 million, most of it being maturities, which happened on the second half of the year, $483 million. In terms of non-interest income, it was fairly flat. We did have $3.1 million that we collected on annual continuing insurance commission this quarter.
But last quarter, we had a $3 million gain we achieved on the sale of a bank premise in Florida [ph] region, so they offset each other. So, we had slight increase on fee base income on other transactions. Operating expenses for the quarter are $5.7 million lower. The fourth quarter expenses were $126.6 million and our first quarter expenses are $20.9 million. Last quarter did include the $6.3 million special assessment from the FDIC that I mentioned before, while this quarter included an additional $900,000 related to the assessment. If we were to exclude the assessment, expenses were $120 million in the first quarter of 2024, which is $300,000 or higher than last quarter. What we had in the quarter was employee compensation increasing $3.9 million.
Basically the typical increase in payroll taxes at the beginning of each year and also the impact of stock-based compensation in the first quarter. On the other hand, however, business promotion was down $2.9 million based on projected basis -- basic promotion activities. The quarter did see -- we did see additional gains on OREO. We achieve $1.5 million gain on OREO. If we exclude these OREO gains, expenses for the quarter were within the $120 million to $122 million guidance that we had provided in the prior quarter. And we continue to maintain such guidance for the second quarter. As Aurelio mentioned, the efficiency ratio for the quarter was 52.5%. But if we exclude the special assessment, this -- the FDIC special assessment, it would have been 52.1%, which is also in line with our guidance of 52%.
We assume that no meaningful changes on net interest income, the efficiency ratios will continue to hover around the 52% target. In terms of asset quality, NPAs increased $3.7 million during the quarter to $129.6 million, which represents 69 basis points on total assets. The increase was driven by the migration of $10.5 million commercial loan participation in the Florida region that that was offset by reductions of $3.8 million in OREO and $1.9 million in in repossessed autos. The inflows were up $11.9 million to $46.8 million, a lot driven by that $10.5 million case I just mentioned on the Florida region. We also had some increases of $3.1 million in consumer inflows -- consumer loan inflows. On the other hand, loans in early delinquency declined $17.1 million to $133.7 million with reductions of $15.5 million in consumer loans, mostly auto and $4 million in residential mortgage reductions in residential mortgage delinquencies.
The allowance stood up at $263 million at the end of the quarter, which is up $1.8 million versus prior quarter, but the coverage remained relatively flat at 2.14%, just 1 basis point lower than last quarter. Net charge offs were $11.2 million, which is 37 basis points of average loans. Obviously net of the of the $9.5 million recovery from the sale of [Indiscernible] consumer loan. If we were to exclude this recovery, the annualized net charge of rate for the quarter was 68 basis points versus 69 basis points in the fourth quarter. On the capital front, Aurelio made reference already regulatory ratios remained strong significantly above well capitalized level. And we have continued with our capital distribution plans to share buybacks and common stocks.
Our tangible book value per share increased slightly to $8.58. But the tangible common equity ratio decreased slightly to 7.6%, primarily either an increase on the on the adjusted other comprehensive loss component from the fair value of the securities As of March, the adjusted -- comprehensive loss represents $3.88 of intangible book value and over 300 basis points on the tangible common equity ratio. And as we have mentioned before, assuming stable rates, we will continue to recover the adjusted losses based on the duration that we have on the portfolio. With this, I would like to open the call for questions.
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