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

• Net income of $70.7 million, or $0.39 per diluted share, for the second quarter of 2023, consistent with the first quarter of 2023. Return on average assets for the second quarter of 2023 at 1.51%, compared to 1.55% for the first quarter of 2023.
• Income before income taxes of $101.0 million for the second quarter of 2023, compared to $102.6 million for the first quarter of 2023.
• On a non-GAAP basis, adjusted pre-tax, pre-provision income of $118.0 million for the second quarter of 2023, relatively flat compared to $118.1 million for the first quarter of 2023.
• Net interest income of $199.8 million for the second quarter of 2023, compared to $200.9 million for the first quarter of 2023, while the net interest margin decreased to 4.23% for the second quarter of 2023 from 4.34% for the first quarter of 2023. The decrease in net interest income and margin primarily reflects higher interest expense on deposits that exceeded the benefit of higher loan yields and portfolio growth.
• Provision for credit losses increased to $22.2 million for the second quarter of 2023, compared to $15.5 million for the first quarter of 2023, mainly due to a deterioration in the forecasted commercial real estate price index (“CRE price index”), as well as the growth in the consumer and the commercial and construction loan portfolios. The ratio of the ACL for loans and finance leases to total loans held for investment was 2.28% as of June 30, 2023, compared to 2.29% as of March 31, 2023.
• Non-interest income increased to $36.3 million for the second quarter of 2023, compared to $32.5 million for the first quarter of 2023, mainly driven by a $3.6 million gain recognized from a legal settlement and a $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures, partially offset by $2.3 million in seasonal contingent insurance commissions recorded in the first quarter of 2023.
• Non-interest expenses decreased by $2.4 million to $112.9 million for the second quarter of 2023, compared to $115.3 million for the first quarter of 2023, mainly driven by lower payroll taxes and bonuses as a result of employees reaching maximum taxable amounts. The efficiency ratio for the second quarter of 2023 was 47.83%, compared to 49.39% for the first quarter of 2023. On a non-GAAP basis, excluding the aforementioned gains, the efficiency ratio for the second quarter of 2023 was 48.91%.
• Income tax expense decreased to $30.3 million for the second quarter of 2023, compared to $31.9 million for the first quarter of 2023, mainly related to lower pre-tax income and a lower estimated effective tax rate when compared to the prior quarter.
• Credit quality variances:
  • Non-performing assets decreased by $7.9 million to $121.1 million as of June 30, 2023, driven by a $6.2 million charge-off recorded on a commercial and industrial participated loan in the Florida region in the power generation industry and a $3.1 million decrease in nonaccrual residential mortgage loans mainly due to loans restored to accrual status.
  • Annualized net charge-offs to average loans ratio increased to 0.67% for the second quarter of 2023, compared to 0.46% for the first quarter of 2023, mainly driven by the aforementioned charge-off recorded in the second quarter of 2023.
• Total loans increased by $140.4 million from the prior quarter to $11.7 billion as of June 30, 2023. On a portfolio basis, the total loan growth consisted of increases of $88.2 million in consumer loans, primarily auto loans and leases, and $70.8 million in commercial and construction loans, partially offset by a decrease of $18.6 million in residential mortgage loans. In terms of geography, the total loan growth consisted of increases of $79.3 million in the Puerto Rico region, $42.5 million in the Virgin Islands region, and $18.6 million in the Florida region.
• Total loan originations, including refinancings, renewals, and draws from existing commitments (other than credit card utilization activity), amounted to $1.1 billion in the second quarter of 2023, an increase of $8.9 million compared to the first quarter of 2023. The growth in total loan originations consisted of increases of $37.9 million in residential mortgage loan originations and $11.1 million in consumer loan originations, partially offset by a $40.1 million decrease in commercial and construction loan originations.
• Total deposits increased by $767.7 million to $16.8 billion. Excluding brokered certificates of deposit (“brokered CDs”) and government deposits, total deposits decreased by $104.3 million to $13.0 billion as of June 30, 2023, consisting of reductions of $77.3 million in the Puerto Rico region, $22.5 million in the Florida region, and $4.5 million in the Virgin Islands region. The decrease in total deposits, excluding brokered CDs and government deposits, is net of a $149.4 million increase in time deposits.
• Government deposits, which are fully collateralized, increased in the second quarter of 2023 by $761.3 million and totaled $3.4 billion as of June 30, 2023. The increase in government deposits reflected growth of $698.0 million in the Puerto Rico region, $62.5 million in the Virgin Islands region, and $0.8 million in the Florida region.
• Brokered CDs increased by $110.7 million during the second quarter of 2023 to $363.6 million as of June 30, 2023, or 2.2% of total deposits.
• Borrowings decreased by $546.1 million during the second quarter of 2023 to $0.7 billion as of June 30, 2023, driven by repayments of $425.0 million in short-term Federal Home Loan Bank (“FHLB”) advances, a $99.0 million decline in short-term securities sold under agreements to repurchase (“repurchase agreements”), and the repurchase of $21.4 million in junior subordinated debentures.
• Cash and cash equivalents increased by $223.9 million to $1.0 billion as of June 30, 2023 even after the $546.1 million decrease in borrowings. When adding $2.2 billion of free high-quality liquid securities that could be liquidated or pledged within one day, total core liquidity amounted to $3.2 billion as of June 30, 2023, or 16.70% of total assets, compared to 16.77% as of March 31, 2023. Including the $980.9 million in available lending capacity at the FHLB, available liquidity increased to 21.82% of total assets as of June 30, 2023, compared to 21.42% as of March 31, 2023.
• Capital ratios exceed required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s estimated total capital, common equity tier 1 (“CET1”) capital, tier 1 capital, and leverage ratios were 19.15%, 16.64%, 16.64%, and 10.73%, respectively, as of June 30, 2023. On a non-GAAP basis, the tangible common equity ratio was 7.03% as of June 30, 2023, compared to 7.12% as of March 31, 2023.

First BanCorp. (the “Corporation” or “First BanCorp.”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported a net income of $70.7 million, or $0.39 per diluted share, for the second quarter of 2023, compared to $70.7 million, or $0.39 per diluted share, for the first quarter of 2023, and $74.7 million, or $0.38 per diluted share, for the second quarter of 2022.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We continue to focus on our strategic imperatives as we deliver another strong quarter of profitable growth for the franchise. We generated $70.7 million in net income, or $0.39 per share, which translated into a strong Return on Average Assets of 1.51% for the quarter. Our well diversified loan portfolio expanded for the sixth consecutive quarter, credit quality metrics remained stable, and our enduring expense management discipline is evidenced by an industry-low efficiency ratio of approximately 47.83%. Our organization is well positioned to continue gaining market share in the markets we serve by employing our long-standing client-centric omnichannel sales and service approach.

Loan origination activity during the quarter was positive and in-line with our expectations and forward guidance. Total loans increased by $140.4 million during the quarter driven by strong growth in commercial and consumer loans in Puerto Rico, particularly in the auto lending segment. Total core deposits, which exclude brokered and government deposits, decreased by $104.3 million or 0.8%. Deposit reductions continue to be driven by a combination of rate-sensitive customers looking for higher-yielding non-bank options and the gradual reduction of excess liquidity, particularly in our main market. In terms of the franchise, during the second quarter we expanded our small business digital lending offering to our other regional operations and relaunched our new corporate portal, www.1firstbank.com, which serves as an important tool for expanding our self-service distribution channels and enhancing the digital experience of our customers.

Despite higher rates and inflationary pressures, economic trends in our main market remain positive driven by the unprecedented inflow of federal funds that are expected to support economic activity over the next decade coupled with new investors coming into our market. Credit demand remains solid, labor market trends continue to improve, and strong consumer sentiment is evidenced by the rise in auto and retail sales. We are highly encouraged by the economic prospects in Puerto Rico and its potential for continued growth.

Finally, we resumed the previously authorized share buyback program in July 2023 and expect to complete the pending $75 million authorization during the third quarter. In addition, we completed our capital planning process during the second quarter, and we are very pleased to announce that our Board approved a new $225 million common share repurchase program that we expect to execute by the third quarter of 2024. Our ample capital position remains significantly above “well capitalized” thresholds which allows us to continue growing the franchise under any operating environment and supporting our people and the communities we serve while enhancing shareholder value."

NON-GAAP DISCLOSURES

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

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

Special Items

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

Quarter ended June 30, 2023

• A $3.6 million ($2.3 million after-tax) gain recognized from a legal settlement reflected in the condensed consolidated statements of income as part of other non-interest income.
• A $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures reflected in the condensed consolidated statements of income as “Gain on early extinguishment of debt.” The junior subordinated debentures are reflected in the condensed consolidated statements of financial condition as “Other borrowings.” The purchase price equated to 92.5% of the $21.4 million par value. The 7.5% discount resulted in the gain of $1.6 million. The gain, realized at the holding company level, had no effect on the income tax expense in the second quarter of 2023.

Non-GAAP Financial Measures

Adjusted Pre-Tax, Pre-Provision Income

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

Tangible Common Equity Ratio and Tangible Book Value per Common Share

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

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

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

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

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

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

Income before income taxes was $101.0 million for the second quarter of 2023, compared to $102.6 million for the first quarter of 2023. For the six-month period ended June 30, 2023, income before income taxes was $203.6 million, compared to $234.4 million for the same period in 2022. Adjusted pre-tax, pre-provision income was $118.0 million for the second quarter of 2023, compared to $118.1 million for the first quarter of 2023. For the six-month period ended June 30, 2023, adjusted pre-tax, pre-provision income was $236.1 million, compared to $230.6 million for the same period in 2022. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters and for the six-month periods ended June 30, 2023 and 2022:

NET INTEREST INCOME

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

Net interest income amounted to $199.8 million for the second quarter of 2023, a decrease of $1.1 million, compared to $200.9 million for the first quarter of 2023. The decrease in net interest income reflects the following:

• An $11.7 million increase in interest expense on interest-bearing deposits, including:
  • A $4.9 million increase in interest expense on time deposits, excluding brokered CDs, mainly due to approximately $3.9 million associated with higher rates paid in the second quarter of 2023 on new issuances and renewals; the $169.1 million increase in the average balance that resulted in approximately $0.8 million of additional interest expense; and approximately a $0.2 million increase associated with an additional day in the second quarter of 2023. The average cost of non-brokered time deposits in the second quarter of 2023 increased 63 basis points to 2.50% when compared to the previous quarter.
  • A $4.7 million increase in interest expense on interest-bearing checking and saving accounts, of which approximately $4.3 million was driven by the increase in average rates paid in the second quarter of 2023, primarily in public funds accounts, and $0.2 million was related to an additional day in the second quarter of 2023. The average cost of interest-bearing checking and saving accounts increased by 24 basis points to 1.18% as compared to 0.94% in the previous quarter. Excluding public sector deposits, the average cost of interest-bearing checking and saving accounts for the second quarter of 2023 was 0.67%, as compared to 0.58% in the previous quarter.
  • A $2.1 million increase in interest expense on brokered CDs, mainly driven by an increase of $166.9 million in the average balance, which resulted in additional interest expense of approximately $1.8 million and, to a lesser extent, the effect of higher rates paid in the second quarter of 2023.

Partially offset by:

• A $3.9 million increase in interest income on consumer loans and finance leases, of which approximately $1.6 million was related to an increase of $71.8 million in the average balance of this portfolio; $1.3 million was due to higher yields, mainly in the auto loans and finance leases portfolios; and $1.0 million was related to an additional day in the second quarter of 2023.
• A $3.4 million increase in interest income on commercial and construction loans, of which approximately $1.9 million was mainly related to higher interest rates in the upward repricing of variable-rate loans and new loan originations, $1.0 million was related to an additional day in the second quarter of 2023, and approximately $0.6 million was related to the $27.1 million increase in the average balance of this portfolio.
• A $2.4 million increase in interest income from interest-bearing cash balances and investment securities, mainly due to a $3.2 million increase in interest income from interest-bearing cash balances, primarily consisting of cash balances deposited at the Federal Reserve Bank (“FED”), mainly driven by the $213.1 million increase in the average balance; and a $0.4 million increase in dividends received from the FHLB. Partially offsetting these increases was a $1.1 million decrease in interest income on the debt securities portfolio, mainly due to higher U.S. agencies’ mortgage-backed securities (“MBS”) premium amortization expense associated with changes in anticipated prepayments, and the decrease of $107.5 million in the average balance.
• A $0.8 million decrease in interest expense on borrowings, mainly driven by approximately $1.1 million associated with the $94.9 million decrease in the average balance of FHLB advances, driven by the precautionary liquidity measures taken at the end of the first quarter of 2023, partially offset by a higher average cost of funds in the second quarter.
• A $0.1 million increase in interest income on residential mortgage loans.

Net interest margin for the second quarter of 2023 decreased to 4.23%, compared to 4.34% for the first quarter of 2023, mainly reflecting the effect of higher rates paid on deposits and an increasing migration from non-interest-bearing and other low cost deposits to higher cost time deposits that exceeded the increase in earning asset yields over the quarter.

NON-INTEREST INCOME

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

Non-interest income amounted to $36.3 million for the second quarter of 2023, compared to $32.5 million for the first quarter of 2023. Non-interest income for the second quarter of 2023 includes the $3.6 million gain recognized from a legal settlement included as part of other non-interest income and the $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures included as part of gain on early extinguishment of debt. On a non-GAAP basis, excluding the effect of these Special Items, adjusted non-interest income decreased by $1.4 million mainly due to:

• A $2.1 million decrease in insurance commission income mainly driven by $2.3 million in seasonal contingent commissions recorded in the first quarter of 2023 based on the prior year’s production of insurance policies.

Partially offset by:

• A $0.6 million increase in adjusted other non-interest income mainly driven by the effect during the second quarter of 2023 of $0.3 million in debit card incentives collected during the second quarter of 2023 and a $0.2 million gain recognized from the sale of a fixed asset in the Florida region.

NON-INTEREST EXPENSES

The following table sets forth information concerning non-interest expenses for the last five quarters:

Non-interest expenses amounted to $112.9 million in the second quarter of 2023, a decrease of $2.4 million from $115.3 million in the first quarter of 2023. The $2.4 million decrease reflects the following significant variances:

• A $2.1 million decrease in employees’ compensation and benefits expense, mainly driven by a decrease in bonuses and payroll taxes due to employees reaching maximum taxable amounts.
• A $1.0 million decrease in other non-interest expenses, mainly due to reserve releases of legal and operational reserves recorded during the second quarter of 2023.
• A $0.4 million decrease in professional service fees, mainly due to a $0.9 million decrease in outsourcing technology service fees, partially offset by a $0.4 million increase in collections, appraisals, and other credit-related fees.
• A $0.2 million decrease in communication expenses.

Partially offset by:

• A $1.2 million increase in credit and debit card processing expenses, mainly as a result of incentives received during the first quarter of 2023.
• A $0.2 million increase in business promotion expenses, mainly as a result of higher advertising and sponsorship expenses incurred during the second quarter of 2023 associated with the commemoration of the 75^th anniversary of the Bank and an increase in donations, partially offset by a $0.6 million decrease in credit card loyalty reward program expense associated with lower historical trends of customer redemptions.

INCOME TAXES

The Corporation recorded an income tax expense of $30.3 million for the second quarter of 2023, compared to $31.9 million for the first quarter of 2023. The decrease was mainly related to lower pre-tax income and a lower estimated effective tax rate when compared to the previous quarter.

The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, was 30.1% for the second quarter of 2023, compared to 31.2% for the first quarter of 2023. As of June 30, 2023, the Corporation had a deferred tax asset of $153.9 million, net of a valuation allowance of $184.2 million against the deferred tax assets.

CREDIT QUALITY

Non-Performing Assets

The following table sets forth information concerning non-performing assets for the last five quarters:

Variances in credit quality metrics:

• Total non-performing assets decreased by $7.9 million to $121.1 million as of June 30, 2023, compared to $129.0 million as of March 31, 2023. Total nonaccrual loans held for investment decreased by $7.1 million to $82.0 million as of June 30, 2023, compared to $89.1 million as of March 31, 2023.
  
  
  
  The decrease in non-performing assets was mainly driven by:
  • A $4.4 million decrease in nonaccrual commercial and construction loans, mainly related to the aforementioned $6.2 million charge-off recorded during the second quarter of 2023, partially offset by the inflow of a $1.5 million commercial and industrial loan in the Puerto Rico region.
  • A $3.1 million decrease in nonaccrual residential mortgage loans, mainly related to $2.7 million of loans restored to accrual status.
  • A $1.3 million decrease in the other real estate owned (“OREO”) portfolio balance, mainly attributable to the sale of residential properties in the Puerto Rico region.
    
    
    
    Partially offset by:
    
    
  • A $0.7 million increase in other repossessed property, mainly consisting of repossessed automobiles.
  • A $0.4 million increase in nonaccrual consumer loans, mainly auto loans and finance leases.
    
    
• Inflows to nonaccrual loans held for investment were $24.9 million in the second quarter of 2023, a decrease of $4.8 million compared to inflows of $29.7 million in the first quarter of 2023. Inflows to nonaccrual commercial and construction loans were $3.1 million in the second quarter of 2023, a decrease of $5.0 million compared to inflows of $8.1 million in the first quarter of 2023 mainly due to the inflow of a $7.1 million commercial and industrial participated loan in the Florida region during the first quarter of 2023. Inflows to nonaccrual consumer loans were $18.8 million, a decrease of $0.7 million compared to inflows of $19.5 million in the first quarter of 2023. Inflows to nonaccrual residential mortgage loans were $3.0 million in the second quarter of 2023, an increase of $0.9 million compared to inflows of $2.1 million in the first quarter of 2023. See Early Delinquency below for additional information.
• Adversely classified commercial and construction loans decreased by $4.3 million to $65.7 million as of June 30, 2023, mainly driven by the aforementioned $6.2 million charge-off recorded in the second quarter of 2023.

Early Delinquency

Total loans held for investment in early delinquency (i.e., 30-89 days past due accruing loans, as defined in regulatory reporting instructions) amounted to $118.5 million as of June 30, 2023, an increase of $24.0 million, compared to $94.5 million as of March 31, 2023. The variances by major portfolio categories are as follows:

• Consumer loans in early delinquency increased in the second quarter of 2023 by $12.0 million to $78.4 million, mainly in the auto loan portfolio.
• Commercial and construction loans in early delinquency increased by $6.3 million to $9.2 million, mainly due to a $4.5 million commercial mortgage loan in the Puerto Rico region that matured and is in the process of renewal but for which the Corporation continues to receive interest and principal payments from the borrower.
• Residential mortgage loans in early delinquency increased by $5.7 million to $30.9 million.

Allowance for Credit Losses

The following table summarizes the activity of the allowance for credit losses (“ACL”) for on-balance sheet and off-balance sheet exposures during the second and first quarters of 2023:

The main variances of the total ACL by main categories are discussed below:

Allowance for Credit Losses for Loans and Finance Leases

As of June 30, 2023, the ACL for loans and finance leases was $267.1 million, an increase of $1.5 million, from $265.6 million as of March 31, 2023. The ACL for commercial and construction loans increased by $4.3 million, mainly due to a deterioration in the forecasted CRE Price Index to account for an increased uncertainty in the CRE market at a national level that could potentially impact the markets we serve coupled with the growth in the commercial and construction loan portfolios, partially offset by the aforementioned charge-off recorded during the second quarter of 2023. The ACL for consumer loans increased by $1.1 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios, partially offset by updated macroeconomic variables, such as the unemployment rate, which are now forecasted to deteriorate at a slower pace than previously expected. The ACL for residential mortgage loans decreased by $3.9 million, mainly due to a more favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the Regional Home Price Index.

• The provision for credit losses on loans and finance leases was $20.8 million for the second quarter of 2023, compared to $16.3 million in the first quarter of 2023.
  • Provision for credit losses for the commercial and construction loan portfolio was $10.2 million for the second quarter of 2023, compared to $0.5 million in the first quarter of 2023, mainly due to an increased uncertainty in the CRE price index and, to a lesser extent, the effect of the increase in the size of the loan portfolio. The results for the second quarter of 2023 also reflect a $1.2 million incremental provision associated to the aforementioned commercial and industrial participated loan in the Florida region in the power generation industry.
  • Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $3.5 million for the second quarter of 2023, compared to an expense of $0.1 million in the first quarter of 2023. The net benefit recognized during the second quarter of 2023 was mainly due to a more favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the Regional Home Price Index.
  • Provision for credit losses for the consumer loans and finance leases portfolio was $14.1 million for the second quarter of 2023, compared to $15.7 million in the first quarter of 2023. The decrease in provision expense is primarily related to the previously mentioned updates in macroeconomic variables.
• The ratio of the ACL for loans and finance leases to total loans held for investment was 2.28% as of June 30, 2023, compared to 2.29% as of March 31, 2023. The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 326% as of June 30, 2023, compared to 298% as of March 31, 2023.

Net Charge-Offs

The following table presents ratios of annualized net charge-offs (recoveries) to average loans held-in-portfolio for the last five quarters:

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 $19.3 million for the second quarter of 2023, or an annualized 0.67% of average loans, compared to $13.3 million, or an annualized 0.46% of average loans, in the first quarter of 2023. The increase of $6.0 million in net charge-offs was driven by a $6.1 million increase in commercial and construction loans net charge-offs mainly related to the aforementioned $6.2 million charge-off recorded during the second quarter of 2023.

Allowance for Credit Losses for Unfunded Loan Commitments

As of June 30, 2023, the ACL for off-balance sheet credit exposures increased to $4.9 million, compared to $4.2 million as of March 31, 2023, mainly in the construction loan portfolio, due to a deterioration in the forecasted CRE Price Index.

Allowance for Credit Losses for Debt Securities

As of June 30, 2023, the ACL for debt securities was $8.8 million, of which $8.4 million is related to Puerto Rico municipal bonds classified as held-to-maturity, compared to $8.0 million and $7.6 million, respectively, as of March 31, 2023. The increase in the ACL of held-to-maturity debt securities was mostly driven by higher exposure risk associated to the rising interest rate environment.

LIQUIDITY

Cash and cash equivalents increased by $223.9 million to $1.0 billion as of June 30, 2023. When adding $2.2 billion of free high-quality liquid securities that could be liquidated or pledged within one day, total core liquidity amounted to $3.2 billion as of June 30, 2023, or 16.70% of total assets, compared to $3.2 billion, or 16.77% of total assets as of March 31, 2023. In addition, as of June 30, 2023, the Corporation had $980.9 million available for credit with the FHLB based on the value of collateral pledged with the FHLB. As such, the basic liquidity ratio (which includes cash, free high-quality liquid assets such as U.S. government and government sponsored entities’ obligations that could be liquidated or pledged within one day, and available secured lines of credit with the FHLB to total assets) was approximately 21.82% as of June 30, 2023, compared to 21.42% as of March 31, 2023.

In addition to the aforementioned available credit from the FHLB, the Corporation also maintains borrowing capacity at the FED Discount Window Program. The Corporation does not consider borrowing capacity from the FED Discount Window as a primary source of liquidity but had approximately $1.4 billion available for funding under the FED’s Borrower-In-Custody (“BIC”) Program as of June 30, 2023. Also, the Corporation has access to financing with other counterparties through repurchase agreements and is enrolled in the FED’s Bank Term Funding Program. Combined, as of June 30, 2023, the Corporation had $5.6 billion available to meet liquidity needs.

The Corporation’s total deposits, excluding brokered CDs, amounted to $16.5 billion as of June 30, 2023, compared to $15.8 billion as of March 31, 2023, including government deposits amounting to $3.4 billion and $2.7 billion, respectively, which are fully collateralized. As of June 30, 2023, $4.7 billion of these deposits are uninsured, which represent 28.79% of total deposits, compared to $4.8 billion, or 30.13% of total deposits, as of March 31, 2023. Brokered CDs amounted to $363.6 million as of June 30, 2023, compared to $252.9 million as of March 31, 2023. Refer to Table 11 for additional information about the deposits composition.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $19.2 billion as of June 30, 2023, up $175.4 million from March 31, 2023.

The following variances within the main components of total assets are noted:

• A $223.9 million increase in cash and cash equivalents mainly related to the $767.7 million net increase in deposits, partially offset by the $546.1 million decrease in borrowings.
• A $181.9 million decrease in investment securities, mainly driven by principal repayments of approximately $111.7 million primarily on U.S. agencies MBS, a $54.8 million decrease in the fair value of available-for-sale debt securities attributable to changes in market interest rates and a $19.5 million decrease in investments on FHLB stock tied to the decline in short-term advances from the FHLB.
• A $140.4 million increase in total loans. The variance consisted of increases of $79.3 million in the Puerto Rico region, $42.5 million in the Virgin Islands region, and $18.6 million in the Florida region. On a portfolio basis, the variance consisted of increases of $88.2 million in consumer loans, primarily auto loans and finance leases, and $70.8 million in commercial and construction loans, partially offset by a decrease of $18.6 million in residential mortgage loans. The increase in commercial and construction loans was mainly associated with a $33.2 million increase in the balance of floor plan lines of credit in the Puerto Rico region and the origination of a $47.0 million line of credit facility extended to a public corporation in the Virgin Islands region.
  
  
  
  Total loan originations, including refinancings, renewals, and draws from existing commitments (excluding credit card utilization activity), amounted to $1.1 billion in the second quarter of 2023, an increase of $8.9 million compared to the first quarter of 2023. The growth in total loan originations consisted of increases of $37.9 million in residential mortgage loan originations and $11.1 million in consumer loan originations, partially offset by a $40.1 million decrease in commercial and construction loan originations.
  
  
  
  Total loan originations in the Puerto Rico region amounted to $834.7 million in the second quarter of 2023, a decrease of $75.0 million, compared to $909.7 million in the first quarter of 2023. The $75.0 million decline in total loan originations consisted of: (i) a $112.3 million decrease in commercial and construction loan originations mainly due to three commercial and industrial loans over $20 million originated in the previous quarter, partially offset by increases of $27.0 million in residential mortgage loan originations and $10.3 million in consumer loan originations.
  
  
  
  Total loan originations in the Virgin Islands region amounted to $79.7 million in the second quarter of 2023, compared to $19.0 million in the first quarter of 2023. The $60.7 million growth in total loan originations consisted of increases of $59.7 million in commercial and construction loan originations driven by the aforementioned $47.0 million origination of a line of credit facility to a public corporation, and $1.1 million in consumer loan originations, partially offset by a $0.1 million decrease in residential mortgage loan originations.
  
  
  
  Total loan originations in the Florida region amounted to $168.9 million in the second quarter of 2023, compared to $145.7 million in the first quarter of 2023. The $23.2 million growth in total loan originations consisted of increases of $12.5 million in commercial and construction loan originations and $11.0 million in residential mortgage loan originations, partially offset by a $0.3 million decrease in consumer loan originations.

Total liabilities were approximately $17.8 billion as of June 30, 2023, an increase of $183.0 million from March 31, 2023.

The increase in total liabilities was mainly due to:

• A $767.7 million increase in total deposits driven by a $917.8 million increase in interest-bearing deposits, partially offset by a $150.1 million decrease in non-interest-bearing deposits. As of June 30, 2023, non-interest-bearing deposits represented 35% of total deposits, compared to 38% as of March 31, 2023. The increase in total deposits included the following significant variances:
  • A $761.3 million increase in government deposits, consisting of growth of $698.0 million in the Puerto Rico region, $62.5 million in the Virgin Islands region, and $0.8 million in the Florida region. Most of the increase in the Puerto Rico region was related to higher balances of interest-bearing transactional accounts.
  • A $110.7 million increase in brokered CDs. The increase reflects the effect of new issuances amounting to $264.4 million with an all-in cost of 5.14%, partially offset by approximately $153.7 million of maturing brokered CDs, with an all-in cost of 4.80%, that were paid off during the second quarter of 2023.
  • A $104.3 million decrease in deposits, excluding brokered CDs and government deposits, reflecting reductions of $77.3 million in the Puerto Rico region, $22.5 million in the Florida region, and $4.5 million in the Virgin Islands region. The decrease in total deposits, excluding brokered CDs and government deposits, is net of a $149.4 million increase in time deposits.

Partially offset by:

• A $546.1 million decrease in borrowings, reflecting repayments of $425.0 million in short-term FHLB advances at an average cost of 5.04%, a $99.0 million decline in short-term repurchase agreements, and the repurchase of $21.4 million in junior subordinated debentures.

Total stockholders’ equity amounted to $1.4 billion as of June 30, 2023, a decrease of $7.6 million from March 31, 2023, mainly driven by the $54.8 million decrease in the fair value of available-for-sale debt securities due to changes in market interest rates recognized as part of accumulated other comprehensive loss and $25.3 million in common stock dividends declared in the second quarter of 2023, partially offset by earnings generated in the second quarter of 2023.

As of June 30, 2023, capital ratios exceeded the required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s estimated CET1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 16.64%, 16.64%, 19.15%, and 10.73%, respectively, as of June 30, 2023, compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.33%, 16.33%, 19.02%, and 10.57%, respectively, as of March 31, 2023.

Meanwhile, estimated CET1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank, were 16.54%, 17.34%, 18.59%, and 11.18%, respectively, as of June 30, 2023, compared to CET1 capital, tier 1 capital, total capital and leverage ratios of 16.65%, 17.45%, 18.71%, and 11.29%, respectively, as of March 31, 2023.

Tangible Common Equity (Non-GAAP)

On a non-GAAP basis, the Corporation’s tangible common equity ratio decreased to 7.03% as of June 30, 2023, compared to 7.12% as of March 31, 2023.

The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets to the most comparable GAAP items as of the indicated dates:

Exposure to Puerto Rico Government

As of June 30, 2023, the Corporation had $344.3 million of direct exposure to the Puerto Rico government, its municipalities, and public corporations, an increase of $4.3 million when compared to $340.0 million as of March 31, 2023. As of June 30, 2023, approximately $186.2 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit, and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $113.2 million consisted of loans and obligations which are supported by one or more specific sources of municipal revenues. The Corporation’s total direct exposure to the Puerto Rico government also included $9.5 million in a loan extended to an affiliate of the Puerto Rico Electric Power Authority and $32.1 million in loans to agencies of Puerto Rico public corporations. In addition, the total direct exposure included obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.3 million (fair value of $2.1 million as of June 30, 2023), included as part of the Corporation’s available-for-sale debt securities portfolio. This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages and had an unrealized loss of $1.1 million as of June 30, 2023, of which $0.3 million is due to credit deterioration.

The aforementioned exposure to municipalities in Puerto Rico included $166.1 million of financing arrangements with Puerto Rico municipalities that were issued in bond form but underwritten as loans with features that are typically found in commercial loans. These bonds are accounted for as held-to-maturity debt securities. As of June 30, 2023, the ACL for these securities was $8.4 million, compared to $7.6 million as of March 31, 2023.

As of June 30, 2023, the Corporation had $2.9 billion of public sector deposits in Puerto Rico, compared to $2.2 billion as of March 31, 2023. Approximately 21% of the public sector deposits as of June 30, 2023, were from municipalities and municipal agencies in Puerto Rico, and 79% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.

Conference Call / Webcast Information

First BanCorp.’s senior management will host an earnings conference call and live webcast on Thursday, July 27, 2023, 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, fbpinvestor.com, or through a dial-in telephone number at (833) 470-1428 or (404) 975-4839 for international callers. The participant access code is 640793. 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, fbpinvestor.com, until July 27, 2024. A telephone replay will be available one hour after the end of the conference call through August 26, 2023, at (866) 813-9403. The replay access code is 486480.

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,” “will,” “plans,” “forecast,” “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 hereof, and advises readers that any such forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, including, but not limited to, the uncertainties more fully discussed in Part I, Item 1A, “Risk Factors” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, Part II, Item 1A, “Risk Factors” of the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, and the following, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: the impacts of rising interest rates and inflation on the Corporation, including a decrease in demand for new loan originations and refinancings, increased competition for borrowers, attrition in deposits, a reduction in the fair value of the Corporation’s debt securities portfolio, and an increase in non-interest expenses which would impact the Corporation’s earnings and may adversely impact origination volumes, liquidity, and financial performance; volatility in the financial services industry, including failures or rumored failures of other depository institutions, and actions taken by governmental agencies to stabilize the financial system, which could result in, among other things, bank deposit runoffs and liquidity constraints; the effect of continued changes in the fiscal and monetary policies and regulations of the U.S. federal government, the Puerto Rico government and other governments, including those determined by the Federal Reserve Board, the Federal Reserve Bank of New York, the Federal Deposit Insurance Corporation (“FDIC”), government-sponsored housing agencies and regulators in Puerto Rico and the U.S. and British Virgin Islands; uncertainty as to the ability of FirstBank to retain its core deposits and generate sufficient cash flow through its wholesale funding sources, such as securities sold under agreements to repurchase, FHLB advances, and brokered CDs, which in turn affects its ability to make dividend payments to the Corporation and could result in selling certain investment securities portfolio at a loss; adverse changes in general economic conditions in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, including in the interest rate environment, unemployment rates, market liquidity, housing absorption rates, real estate markets, and U.S. capital markets, which may affect funding sources, loan portfolio performance and credit quality, market prices of investment securities, and demand for the Corporation’s products and services, and which may reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; the impact of government financial assistance for hurricane recovery and other disaster relief on economic activity in Puerto Rico, and the timing and pace of disbursements of funds earmarked for disaster relief; the ability of the Corporation, FirstBank, and third-party service providers to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking,” identity theft, and state-sponsored cyberthreats, and the occurrence of and response to any incidents that occur, such as an April 2023 security incident at one of our third-party vendors, which may result in misuse or misappropriation of confidential or proprietary information, disruption, or damage to our systems or those of third-party service providers, increased costs and losses or an adverse effect to our reputation; general competitive factors and other market risks as well as the implementation of strategic growth opportunities, including risks, uncertainties, and other factors or events related to any business acquisitions or dispositions; uncertainty as to the implementation of the debt restructuring plan of Puerto Rico and the fiscal plan for Puerto Rico as certified on April 3, 2023, by the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments and tax regulations in Puerto Rico; the impact of changes in accounting standards, or assumptions in applying those standards, on forecasts of economic variables considered for the determination of the ACL; the ability of FirstBank to realize the benefits of its net deferred tax assets; environmental, social, and governance matters, including our climate-related initiatives and commitments; the impacts of natural or man-made disasters, widespread health emergencies, geopolitical conflicts (including the ongoing conflict in Ukraine), terrorist attacks, or other catastrophic external events, including impacts of such events on general economic conditions and on the Corporation’s assumptions regarding forecasts of economic variables; the effect of changes in the interest rate environment, including any adverse change in the Corporation’s ability to attract and retain clients and gain acceptance from current and prospective customers for new products and services, including those related to the offering of digital banking and financial services; the risk that additional portions of the unrealized losses in the Corporation’s debt securities portfolio are determined to be credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s available-for-sale debt securities portfolio; the impacts of applicable legislative, tax, or regulatory changes on the Corporation’s financial condition or performance; the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments, causing an additional increase in the Corporation’s non-interest expenses; any need to recognize impairments on the Corporation’s financial instruments, goodwill, and other intangible assets; the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of FirstBank and preclude the Corporation’s Board of Directors from declaring dividends; and uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels, and compliance with applicable laws, regulations and related requirements. The Corporation does not undertake, and specifically disclaims any obligation to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal securities laws.

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.

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