Q1 Earnings Review: Banco Popular & First Bank

Author

Faro Capital
May 15, 2023

Hello Readers,

This is the first edition to an earnings review I will start posting on the website periodically. In this article I’ll cover Q1 earnings of Banco Popular and First Bank. Stay tuned for more coverage on other companies going forward and hope you enjoy the content.

Banco Popular

1) Results (Beat Analyst Estimates)

Revenue:

· Estimate - $690.66M

· Actual - $693.63M

EPS:

· Estimate: 2.03

· Actual: 2.22

Net Interest Margin: Dropped 0.06% Quarter over Quarter

· Q1 2023 – 3.22%

· Q4 2022 – 3.28%

2) Earnings Highlights

· Net Income dropped 38% in Q1 2023 vs Q4 2022

· Non-performing loans held-in-portfolio exposure dropped by $27M vs Q4 2022

· Lower net interest income was due to lower income from money market & investment activities, higher interest expense, and higher cost of deposits due to higher rates.

· Non-interest income rose due to higher fees (credit card, trust, investment mgt., etc.) charged to banking clients.

· High beta public sector deposits account for 25% of total deposits.

· Deposits excess of $250K was $11.4B (22%) of Puerto Rico operations & $2.4B (25%) of U.S. operations vs liquidity sources of $15.8B PR operations & $2.7B U.S. operations.

· Investment portfolio duration is 2.6 years.

CEO’s take on earnings:

“Our diversified business model and strong deposit base, robust capital and liquidity positions are a source of strength and allow us to continue to meet our client’s needs, as reflected by the growth in our loan portfolio and client base during the quarter. Economic trends in Puerto Rico are positive, and a considerable amount of recovery funds yet to be disbursed are expected to support additional economic activity in the future years”.

-- CEO Ignacio Alvarez

3) Balance Sheet

· $462M cash on hand, slightly lower than last quarter

· Tier 1 leverage ratio is 8.47%, rose 5% QoQ and rose 21% Y/Y

4) Ratios & Margins

First Bank

1) Results (Beat Analyst Estimates)

 Revenue:

· Estimate: $226.73M

· Actual: $274.9M

EPS:

· Estimate: 0.35

· Actual: 0.39

 Net Interest Margin: Dropped 0.03% Quarter over Quarter

· Q1 2023: 4.34%

· Q4 2022: 4.37%

2) Earnings Highlights

· Net Interest Income dropped 2.28% in Q1 2023 vs Q4 2022.

· Net interest margin dropped due to increase of borrowing costs and an average 38 basis point increase in interest-bearing deposits.

· Provisions for credit losses stood flat quarter over quarter.

· Increased loans came from activity in Puerto Rico while loan decreases were realized in Florida & U.S. Virgin Islands.

· Commercial Loan portfolio is broken down as the following:

CRE- $2.35B (45%)

C&I- $2.85B (55%)

· Fully collateralized government deposits were $2.7B in Q1 2023

· About 70% of deposit portfolio are insured.

CEO’s take on earnings:

“We begin 2023 with very encouraging financial results for the franchise which once again prove the resiliency of our business model amidst changing market conditions. We registered healthy loan originations driven by steady consumer and commercial credit demand, particularly in Puerto Rico where commercial and consumer loans grew by $92.3 million and $78.9 million, respectively, during the quarter. Our credit metrics continued to improve with early delinquency indicators decreasing across most portfolios and non-performing assets registering a decrease to 0.68% of total assets. Our deposit base remained very stable following the March industry events as we opened more new deposit accounts during March than any of the prior twelve months. Our diversified deposit franchise is strategically distributed between retail and commercial customers, with low average balances per deposit account, and with over 70% of deposits insured or fully collateralized”.

-- CEO Aurelio Alemán

3) Balance Sheet

· Cash up 71% quarter over quarter

· Tier 1 leverage ratio is 10.57%, dropped 1.2% q/q and rose 2.13% y/y.

4) Ratios & Margins

5) Summary

With a strong quarter, both bank’s management teams are setting up their perspective banks to weather any market volatility and headwinds that might come along. Decreasing non-performing loans and the decrease in allowance for credit losses shows the positive view on their customer base. Going into Q2 2023 earnings should follow similar performance.

My worries are in the second half of 2023. Factors to watch are the impending U.S recession, stubborn inflation, and hurricane season starting June 1. All these can negatively affect the customer base and put pressure on future earnings. Time will tell if the bank can weather any storm that may arise on the horizon.

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