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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, everyone, and welcome to the First Bancorp First Quarter 2024 Financial Results Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand the floor over to Ramon Rodriguez to begin the call.
Joining you today from First BanCorp are Aurelio Alemán, 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 Alemán.
Let's move to Page 4 of the slide to discuss the highlights. We're definitely very pleased to start the year with another quarter of strong operating results. We posted a strong return on asset of 1.56%, increased pretax pre provision income to $111 million. We continue to do what I consider a nice job managing our expenses, resulting in an efficiency ratio of around 52%. These results reflect, obviously, the hard work and dedication of our colleagues and more importantly, the trust placed by our clients in our institutions as we continue to support their growth and progress.
I'd like to thank all of them for their continued support. Consistent with guidance, we grew loans 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 customers seeking higher yields to time deposits as expected in today's 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 maturity investment into higher yielding assets, which should be margin accretive for the year, like in the case of this quarter, those cashes were reinvested into the loan portfolio. NPAs were slightly up by $4 million to 69 basis points of total assets, primarily due to a negative migration of the $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 our main core businesses. During the quarter, we did increase our quarterly dividend by 14%–$0.16 per share and then repurchased $50 million in common shares. 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 reserve function of a positive economic backdrop that we continue to experience in the island and our disciplined execution of the strategic plan. As we said in the past, the unprecedented level of ELA support continues and is driving economic and construction activity in the island. For the first couple of months of the year, about $800 million of 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 leveraging our size and the relationship-centric business model to 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 will be broad and continue with the goal of continuing to providing the best client experience, whether it's on-site delivery all the data channels, which we are investing in both. In terms of priorities over the coming months, we're very excited to partner with cloud banking pioneer and nCino 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 business environment. It's part of our technology modernization progress, which we feel very proud about it. Our ample capital position and disciplined expense management framework will continue to enable us to deliver value to our shareholders by investing wisely in the franchise, responsibly growing our market share and returning excess capital. With that, I will turn the call now to Orlando to go over more financial detail.
Well, as Aurelio mentioned, we started the year posting strong operating results. We are in $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, translate into a 1.56% return on average assets with strong return. Our adjusted pretax pre-provision increased slightly to $110.5 million from $110 million we had last quarter.
The provision for credit losses on the quarter was $12.2 million. That's $6.6 million lower than last quarter. That's largely driven by $9.5 million in recoveries we achieved on the sale of previously charged-off consumer loans. Also during the quarter, expenses were down $5.7 million, mostly the positive special assessment that was recorded in the prior quarter as compared to what we booked this quarter related to the same assessment. The effective tax rate for the first quarter was 24.3%, which is very similar to the 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 portfolio grew $200 million on average, and the yields on the portfolio also improved. That led to a $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 is the change Aurelio was mentioning. In the case of interest expense, the increase of 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, it's mostly related to $178 million higher average balances of broker deposits. That increased expenses by $2.2 million. Also, customer time deposits grew on average $100 million and the cost increased 22 basis points for a $2.1 million increase in interest expense. Time deposits, as Aurelio also mentioned, we expect to continue to increase. However, broker 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 a mild increase on the pricing pressure on customer deposits. The cost of public funds increased 4 basis points during the quarter and the cost of other interest-bearing deposits, excluding broker and time, decreased 1 basis point.
We are now working 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 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 reemploy the cash flows from the investment portfolio into attractive spreads that will improve the margin. Our most recent estimates show investment 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 in the second half of the year of $483 million. In terms of noninterest income, it was fairly flat. We did have $3.1 million that we collected on annual contingent insurance commission this quarter. Last quarter, we had a $3 million gain we achieved on the sale of a bank premise in the Florida region, so they offset each other.
We had a slight increase on fee-based income on other transactions. Operating expenses for the quarter are $5.7 million lower. The fourth quarter expenses were $126.6 million. Now with first quarter expenses are $120.9 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 $24 million, which is $300,000 higher than last quarter. What we had in the quarter was employee compensation increasing $3.9 million, basically a 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 project business promotion activities.
The quarter we did see additional gains on OREO. We achieved $1.5 million gain on OREO. We exclude these OREO gains, expenses for the quarter were within the $120 million–$122 million guidance that we had provided in the prior quarter, and we continue to maintain such guidance for the second quarter. Aurelio mentioned, the efficiency ratio for the quarter was 52.5%. If we exclude the FDIC special assessment 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, efficiency ratio we 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 a $10.5 million commercial loan participation in the Florida region.
That was offset by reductions of $3.8 million in OREO and $1.89 million in repossessed orders. The inflows were up $11.9 million to $46.8 million, a lot driven by that $10.5 million as I just mentioned on the Florida region. We also had some increases of $3.1 million in consumer loan inflows. On the other hand, loans in early delinquency declined $17.1 million–$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 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 $9.5 million recovery from the sale of the fully charged-off consumer loan. If we were to exclude this recovery, the annualized net charge-off 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. We have continued with our capital distribution plans through share buybacks and common stocks. Our tangible book value per share increased slightly to 8.58%, but the tangible common agreed ratio decreased slightly to 7.6%, primarily an increase on the adjusted other comprehensive loss component from the fair value of the securities.
As of March, the adjusted other comprehensive loss represents $3.88 of intangible book value and over 300 basis points on the tangible common equity ratio. As we have mentioned before, assuming stable rates, we will continue to recover the adjusted losses based on the t duration that we have on the portfolio. With this, I would like to open the call for questions.
[Operator Instructions] Our first question comes from Alex Twerdahl from Piper Sandler.
Orlando from your prepared remarks, it sounds like you're saying that the expectation from here is for deposit costs and funding costs to be pretty flat or close to the ceiling. A pretty good amount of mix shift, almost $1 billion of lower-yielding securities mixing either into loans or cash or higher-yielding securities over the next year. Is it pretty safe to say that the NIM trajectory from here is going to be a bit higher, assuming that higher for longer narrative that you alluded to earlier?
Yes, the expectation, assuming rate funds are going up again, which is not the expectation we have, it's right what you mentioned, Alex. We're going to have the benefit of repricing of the investment portfolio either through loans or through reinvestment of the portfolio. We're going to see some further increases on time deposits. There's going to be some cost increases.
The other chunk of the deposits should stay at similar levels where we are now. The net result that would be some additional margin. As we had mentioned before, we were expecting that inflection point to happen at the end of last year, beginning of this year, and we're starting to see a bit of that based on the way rates are moving.
Then just a little bit more commentary maybe on the loan pipeline. I think in the past, you've alluded to the construction portfolio being a place where you'd expect to see some additional distributions disbursements this year. Is that still the case?
Yes, that is still the case.
Then just overall expectations for loan growth over the next couple of quarters?
We stick to what we provided at the beginning of the year, mid-single digits, primarily driven by commercial construction and auto. Which basically mortgage flat and some of the other unsecured consumer probably yielding down.
Then I just wanted to ask, one of the concerns here from a lot of banks that aren't Puerto Rican banks is just the repricing risk of commercial real estate loans over the next couple of years of loans going from three handles up to seven or eight handles. In 2020, 2021, when you guys were putting on commercial real estate loans, were there loans going on with three handles. Were they pretty comparable to here? Or were there just structurally just higher yields and therefore, less repricing risk on the island?
I will say that there is less repricing risk. I don't remember booking loans, fixed rate loans. Obviously, we've competed on that market. We decided not to compete in that market. I think we had a prior slide in the presentation or in the investor deck that talks about that describe the repricing risk. I make sure the slide is put back into it. We consider that repricing returning low and manageable.
The next question is from Kelly Motta from KBW.
One bright spot this quarter. It looks like noninterest-bearing deposits has stabilized somewhat. As you look ahead, do you think the pressure from migration into higher cost deposit sources have slowed a bit. I know you mentioned that you're going to continue to be impacted by CDs repricing. Wondering if we're seeing a slowdown in the mix shift, that should help somewhat.
Yes. Definitely. What we saw, Kelly, this quarter, if you look at the mix, customer deposits, meaning retail and commercial, including time deposits were slightly down $25 million. Time deposits were up $93 million. We have seen that shift into time deposits. Clearly, the large movement we saw into markets, we are not seeing that anymore. The public funds did increase this quarter, $73 million, more or less a stable size of the portfolio a little bit up, a little bit down every month depending on the operations of the different entities.
Our expectation is that there is going to be a stability in the deposit side this year as compared to what we saw '22 and '23, we saw a lot of money going into the treasury markets and so.
Then turning to your fee income, there was a nice uptick in mortgage banking as well as insurance commission income was up quite a bit. Just wondering if there was anything unusual or not expected to be necessarily repeatable in future quarters? If this is a good level of mortgage banking activity here.
The largest component this quarter of change was obviously the insurance contingent commission that happens in the first quarter of each year. It doesn't repeat through the year. It's a function of volumes originated through the year. Based on that, there is always a level of continued commissions that are paid at the beginning of the following year from the different insurance companies.
That $3 million is not something that we're going to see in every quarter. We saw more originations with rates being at a better level in terms of conforming paper that could be sold. The expectation is stable. Obviously, we need to see what's happening with this recent spike in rates. We don't know if that's going to affect a little bit the conforming market. Other than that, it's the expectation. It's a continuation of what we saw in the quarter.
Maybe last question for me. I feel like after last quarter, there was an investor focus on particularly consumer in Puerto Rico with you and your peers talking about some normalization there. It looks like you guys were able to realize a nice recovery on some previously charged-off loans. Just wondering if you could talk more about the health of the Puerto Rican consumer at this stage as well as any puts and takes as we look ahead as to how we should be thinking about the normalization of credit in this environment?
Yes. I think we'll be covering this topic since last year, actually expecting that to happen early last year as the excess liquidity provided by the pandemic into the consumer accounts was moving out or being utilized. That started to happen more in the second half of last year. Still, normalization still getting to pre-pandemic levels. We expect that to last a few more quarters, not necessarily a lot longer. Primarily on the unsecured components of credit cards and personal loans, which is very similar to what happened in the U.S. industry banks, which is driven by what we believe utilization of liquidity by score levels that were artificially higher or underwriting in some of the cases.
We expect that to continue. I think it's important to understand in the consumer side, those losses are reflected immediately. It's a very short cycle. NPAs are not accumulated. Whatever you see in the short term, you will see also in the recovery in a very short.
We have no further questions on the call, so I will hand the floor back to Ramon.
Thank you to everyone for participating in today's call. We will be attending Wells Fargo Financial Services Conference in Chicago on May 14. We look forward to seeing a number of you at this event, and we greatly appreciate your continued support. Have a great day. Thank you.
This concludes today's conference call. Thank you all very much for joining.