First Ban(US:FBP)2020-10-30 20:27Financial Data and Key Metrics Changes - The company reported a net income of $28.6 million for Q3 2020, an increase from $21 million in the previous quarter [26] - The pre-tax pre-provision net revenue (PPNR) was $77 million, with only one month of earnings from the acquired operations [7] - The provision for credit losses decreased significantly to $8 million from $39 million in the previous quarter [26][39] Business Line Data and Key Metrics Changes - The acquired Santander operation contributed $3.5 million to after-tax net income, excluding Day 1 CECL adjustments [27] - Retail lending showed strong performance, with auto and mortgage lending returning to pre-pandemic levels [18] - Non-interest income improved to $29.9 million, driven by gains on sales of securities and increased mortgage banking activities [35] Market Data and Key Metrics Changes - The loan to deposit ratio stood at 78%, indicating a solid balance sheet post-acquisition [14] - Employment figures in Puerto Rico showed recovery, with 92% of jobs returning to pre-2019 levels [16] - Active moratoriums on loans reduced to only 0.8% of the portfolio as of October 21 [19] Company Strategy and Development Direction - The company completed a strategic acquisition of Santander, enhancing its competitiveness in commercial, retail, and residential banking [5] - Integration of the acquired operations is underway, with plans to complete the process by the end of Q2 2021 [11] - The company aims to balance cost savings with growth opportunities, targeting $48 million in estimated cost savings from the acquisition [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about economic recovery, supported by over $60 billion in pandemic and hurricane relief funds [16] - The company remains vigilant regarding potential economic hurdles due to COVID-19 and is closely monitoring sensitive sectors like hospitality [18] - Management emphasized the importance of executing integration plans and achieving synergies while navigating the current economic environment [52] Other Important Information - The allowance for credit losses increased to $385 million, reflecting the initial allowance required for the Santander operation [39] - The company incurred $10.4 million in merger and restructuring costs during the quarter, significantly higher than the previous quarter [31] - Capital ratios remain strong, with a Tier 1 ratio of 17% despite the acquisition [43] Q&A Session Summary Question: Discussion on capital return and urgency regarding stock performance - Management acknowledged a sense of urgency regarding capital return but emphasized the need to assess the economic environment and regulatory guidelines before making decisions [46][47] Question: Outlook on pre-provision earnings and revenue - Management indicated that loan growth and margin compression risks will influence future PPNR, with a focus on executing integration plans [50][51] Question: Process for capital actions and buybacks - All capital actions require a formal process, and management stressed the importance of timing and stabilization before executing buybacks [60][61] Question: Opportunities for de-leveraging and managing higher-cost deposits - Management confirmed that they are not renewing brokered deposits and are focusing on managing liquidity efficiently [62][63] Question: Cadence of cost savings and impact of voluntary retirement program - Cost savings will be realized over time, with immediate savings from the voluntary separation program starting in January [66][67]