First BanCorp., the bank holding company for FirstBank Puerto Rico, reported Tuesday net income of $24.1 million for the third quarter of 2016, or $0.11 per diluted share, compared to $22.0 million, or $0.10 per diluted share, for the second quarter of 2016 and $14.8 million, or $0.07 per diluted share, for the third quarter of 2015.
“We posted another positive quarter of earnings, $24.1 million or $0.11 per diluted share compared to $22.0 million in the second quarter,” said First BanCorp. President Aurelio Alemán. “Our pre-tax pre-provision income was $50.2 million, in line with prior quarters.”
The financial results included several items that management believes will not be reoccurring, including:
- Gain of $6.1 million ($5.9 million after-tax) on sales of $198.7 million of U.S. agency MBS in the third quarter of 2016.
- Severance payments of $300,000 ($200,000 after-tax) related to permanent job discontinuance in the third quarter of 2016.
- Other Than Temporary Impairment (OTTI) losses on private label MBS of $200,000 in the third quarter of 2015. No tax benefit was recognized for the OTTI charge.
On a non-GAAP basis, excluding the gain on sales of U.S. agency MBS and severance payments in the third quarter of 2016, the adjusted net income of $18.3 million for the third quarter of 2016 decreased $3.6 million compared to net income of $22 million for the second quarter of 2016 and increased $3.3 million compared to adjusted net income of $15.0 million for the third quarter of 2015, excluding the OTTI losses on private label MBS.
The decrease in the third quarter, compared to the second quarter of 2016, was partially due to a $1.2 million charge to income tax expense that resulted from the retroactive effect of a higher effective tax rate related to the results for the first six months of 2016 than the rate that the Corporation estimated in the first and second quarter of 2016.
The increase in the effective tax rate was mainly driven by changes to the expected reversal of temporary differences that affect the calculation of the estimated net operating losses that can be used to offset the taxable income for the fiscal year 2016, and which are subject to a partial valuation allowance.
Changes in the valuation allowance related to the current year are included in the computation of the estimated effective tax rate for the year.
“During the third quarter we opportunistically repositioned our balance sheet, which should drive future profitability,” Alemán said. “Total assets declined this quarter by $433 million due to our utilization of cash and securities to repay maturing brokered CDs, repurchase agreements, and FHLB advances. As part of this repositioning, the sale of $198.7 million of MBS securities resulted in pre-tax gain of $6.1 million.”
He said the franchise’s metrics continue “to progress in the right direction: efficiency improvement, core deposit growth and deposit mix, and we were successful in executing strategies to achieve loan origination and renewal targets which increased 11 percent to $898 million in the third quarter, the highest level since 2014.”
Asset quality remains challenging with a higher level of charge-offs this quarter, yet we were able to reduce nonperforming assets and we experienced a decline in adverse migration.
“Lastly, I want to address the 2016 DFAST results which we completed in the second quarter and published yesterday. Under the severely adverse scenario model, which we are not currently in nor do we anticipate being in during the near future, our pro-forma resulting capital ratios significantly continue to exceed regulatory well-capitalized requirements,” Alemán said.
“This sophisticated process continues to assist us in capital planning decisions and ensuring the proper risk measures are in place, and demonstrates the strength of our core franchise,” he added.
In a call with analysts, Alemán also mentioned the government’s fiscal situation and the proposed debt restructuring under the Financial Oversight and Management Board for Puerto Rico.
“It is early to anticipate results, but we do anticipate that we will all have more clear and transparent financial data on Puerto Rico government situation in the near future,” he said.
“We also continue to monitor progress on the voluntary restructuring negotiations for Puerto Rico and in parallel, we are also doing the ground work on our Tourism Development Fund government guarantees to protect our rights under any potential legal scenario that may arise,” Alemán added.