SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- First BanCorp (the "Corporation") (NYSE:FBP), the bank holding company for FirstBank Puerto Rico ("FirstBank"), today reported results for the quarter ended March 31, 2010. The net loss for the first quarter of 2010 totaled $107.0 million, or $(1.22) per diluted share, compared to a net loss of $53.2 million, or $(0.64) per diluted share, for the fourth quarter of 2009 and net income of $21.9 million, or $0.07 per diluted share, for the first quarter of 2009. The net loss for the first quarter of 2010 was primarily driven by a $171.0 million provision for loan and lease losses compared to a provision for loan and lease losses of $137.2 million for the trailing fourth quarter of 2009.
Total assets decreased by $777.5 million to $18.9 billion as of March 31, 2010 from $19.6 billion as of December 31, 2009. Non-accrual loans increased by $75.5 million, or 4.83%, to $1.64 billion as of March 31, 2010 from $1.56 billion as of December 31, 2009. Meanwhile, the allowance to total loans ratio increased to 4.33% as of March 31, 2010 from 3.79% as of December 31, 2009.
This press release should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.
Aurelio Aleman, President and Chief Executive Officer of First BanCorp commented, "The first quarter financial results were a direct result of the increases to our specific and general reserves for loan and lease losses as a consequence of updated valuations reflecting lower values of the collateral for impaired loans and increases in charge-offs. The operating environment in our markets remains challenging and continues to impact the performance of our construction, commercial and residential real estate portfolios. We continue to focus on improving asset quality and returning to sustained profitability. The successful execution of our core deposit growth strategy resulted in an increase of $418.3 million or eight percent in total deposits, excluding brokered CDs, on a linked-quarter basis while maintaining a stable cost of funds. This performance is a testament to our franchise strength, which allows us to grow deposit share and attract new customers in the markets we serve."
Mr. Aleman concluded, "The Corporation continues to reduce its credit exposure through disposition of assets and different loss mitigation initiatives as we approach the end of this difficult credit cycle in the Florida region. In Puerto Rico, our main market, there are initial signs of stabilization in the local economy. During the first quarter of 2010 we have experienced an improvement in the absorption rates of our residential construction projects, as well as an increase in auto sales financings and stable residential mortgage originations. Being far enough through the credit cycle, we expect a decrease in the demand for additional loan loss provisioning during the upcoming quarters."
Status of Efforts to Raise Additional Equity Capital
During the first quarter of 2010 the Corporation announced its intent to enhance its capital structure in different filings. The Corporation has retained Sandler O'Neill + Partners and UBS Securities, Inc. to find purchasers of approximately $500 million of common stock. It is also considering a rights offering to existing stockholders and possible exchange offers to holders of its preferred stock.
As communicated in the recently filed Proxy Statement, the Corporation must increase its common equity to provide additional protection against the possibility that, due to the current economic situation in Puerto Rico, First BanCorp will have to recognize additional loan loss reserves against its loan portfolio, and to satisfy regulatory concerns. With the additional capital, the Corporation will significantly strengthen its balance sheet and enhance its competitive position to continue executing its organic growth strategies. In addition, the Corporation wants to position itself to benefit from the potential consolidation of the Puerto Rico banking system. The projected reduction in number of competitors should bring significant opportunities to the Corporation to enhance its short and long-term growth prospects. Until the Corporation enhances its capital position, it is not considering direct participation in any FDIC-assisted transaction.
First BanCorp's stockholders will be voting on April 27, at its annual stockholder's meeting, on a proposal to increase the number of shares of common stock the Corporation is authorized to issue from 250 million shares to 750 million shares. If that proposal is approved, First BanCorp may have enough authorized shares of common stock to enable it to complete the sale of $500 million of common stock and a rights offering. In any event, New York Stock Exchange rules are likely to require the approval of the sale of $500 million of shares of common stock and the exchange offer by First BanCorp's stockholders.
The Corporation and its advisors have been meeting with a number of prospective investors. The Corporation has provided those investors with internal projections that suggest that, by 2014, First BanCorp could have $290 million in pre-tax earnings. This projection assumes, among other things, that the Corporation will have no significant loan portfolio write-downs after 2011. That will require a strengthening of the Puerto Rico economy and a number of other improvements in the Corporation's operating environment, which may or may not take place. In addition, it will require that FirstBank's competitive position not be weakened by the expected consolidation of the Puerto Rico banking industry. Finally, this projection does not reflect the benefit from any additional capital, which is expected to improve the Corporation's financial prospects. As with any forward looking information, there is a substantial possibility that the projected level of earnings will not be achieved.
2010 FIRST QUARTER VERSUS 2009 FOURTH QUARTER
Net Interest Income
Compared with the fourth quarter of 2009, net interest income, excluding fair value adjustments ("valuations") on derivatives and financial liabilities measured at fair value, decreased $16.2 million, or 12%. The net interest margin of 2.52% was down from 2.77% in the prior quarter. Net interest income excluding valuations on derivative instruments and financial liabilities and net interest income on a tax-equivalent basis are non-GAAP measures (see Basis of Presentation below for additional information.) The following table reconciles net interest income in accordance with generally accepted accounting principles in the United States of America (GAAP) to net interest income, excluding valuations, and to net interest income on a tax-equivalent basis and net interest spread and net interest margin on a GAAP basis to these items excluding valuations and on a tax-equivalent basis.
(Dollars in thousands) Quarter Ended March 31, December 31, March 31, 2010 2009 2009 Net interest income - GAAP $ 116,863 $ 137,297 $ 121,598 Unrealized loss (gain) on derivative instruments and 1,733 (2,517 ) (3,635 ) liabilities measured at fair value Net interest income excluding 118,596 134,780 117,963 valuations Tax-equivalent adjustment 9,912 12,311 14,448 Net interest income on a tax-equivalent basis excluding $ 128,508 $ 147,091 $ 132,411 valuations Average interest-earning assets $ 19,096,055 $ 19,283,455 $ 18,830,013 Net interest spread - GAAP 2.19 % 2.55 % 2.24 % Net interest spread excluding 2.24 % 2.50 % 2.15 % valuations Net interest spread on a tax-equivalent basis excluding 2.45 % 2.75 % 2.47 % valuations Net interest margin - GAAP 2.48 % 2.82 % 2.62 % Net interest margin excluding 2.52 % 2.77 % 2.54 % valuations Net interest margin on a tax-equivalent basis excluding 2.73 % 3.03 % 2.85 % valuations
The decrease in net interest income reflected a combination of factors including the decline in average-earning assets resulting from the Corporation's strategy to deleverage its balance sheet to further strengthen its capital position, the negative impact on net interest margin of maintaining a higher liquidity position as well as lower loan yields due to increases in non-performing construction and commercial mortgage loans levels. These factors were partially offset by the benefit of lower deposit pricing and the favorable impact from measures taken to improve loan pricing.
The average volume of interest-earning assets decreased by $187.4 million driven by a $208.5 million reduction in the average volume of loans and a decrease of $615.2 million in the average volume of investment securities, almost entirely offset by the $636.3 million increase in the average volume of overnight funding and short-term investments. The average volume of all major loan categories, in particular the average volume of construction loans, decreased from the fourth quarter of 2009. The average volume of construction loans decreased by approximately $101.0 million mainly reflecting both charge-offs and sales of impaired credits. The average volume of commercial loans decreased by $45.9 million, reflecting both pay-downs and charge-offs, in particular the repayment in February of a $500 million credit facility extended to the Puerto Rico Government, partially offset by new loan originations in the latter part of 2009. Average total consumer loans (including finance leases) decreased by $47.3 million mainly as a result of pay downs and charge-offs that exceeded new loan originations. The average volume of residential mortgage loans decreased by $14.3 million mainly due to pay downs, securitizations and sales of loans, partially offset by new loan originations. The $636.3 million decrease in the average volume of investment securities reflected the full impact of the sale of approximately $452 million of U.S. agency MBS with an average yield of 5.33% in the latter part of 2009 as well as the partial impact of the sale of approximately $385 million of U.S. agency MBS with an average yield of 5.31% settled in March, 2010.
During the first quarter of 2010, a key objective was to strengthen balance sheet liquidity due to potential disruptions from the expected consolidation of the Puerto Rico banking industry. Consequently, the Corporation increased its investments in overnight funds. Liquidity volumes are significantly higher than normalized levels as reflected in period-end cash and cash equivalents balance of $1.3 billion, an increase of $626 million since December 2009 and well in excess of historical average balances of approximately $450 million over the last three years. Proceeds from sales and prepayments of mortgage-backed securities ("MBS") and loans were used to increase liquidity and were also used to repay short-term borrowings following the Corporation's decision to deleverage the balance sheet.
Even though the overall average cost of funding was essentially unchanged, the Corporation benefited from the lower deposit pricing on its core and brokered deposits. The period-end balances of total deposits, excluding brokered CDs, increased by 8%, or $418.3 million, from $5.1 billion as of December 31, 2009 to $5.5 billion as of March 31, 2010. The period-end balances of brokered CDs decreased to $7.35 billion as of March 31, 2010 from $7.56 billion as of December 31, 2009, a decrease of $209.1 million. Higher costs on other borrowings, including repurchase agreements and FHLB advances, reflected a larger proportion of long-term borrowings to total borrowings as the Corporation repaid and did not renew maturing short-term repurchase agreements and advances as part of its deleverage strategy. Also offsetting the decrease in deposit pricing was an increase of 68 basis points in the average rate on advances from the Federal Reserve (FED). With U.S. market conditions improving, the Federal Reserve announced in early 2010 its intention to withdraw part of the economic stimulus measures, including reinstating restrictions on the use of Discount Window borrowings, thereby returning to its function as lender of last resort.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the first quarter of 2010 increased by $33.8 million to $171.0 million compared to a provision of $137.2 million in the fourth quarter of 2009. (See the Credit Quality section below for a full discussion.)
Non-Interest Income
Non-interest income increased $6.5 million to $45.3 million in the first quarter of 2010 largely driven by a $10.7 million gain on the sale of the remaining VISA Class C shares partially offset by a lower volume of sales of U.S. agency MBS and other-than-temporary impairment ("OTTI") charges on equity securities. During the first quarter of 2010, the Corporation recorded a gain of $20.3 million on the sale of approximately $385 million of 30-year fixed-rate U.S. agency MBS compared to a realized gain of $24.4 million on the sale of approximately $452 million of U.S. agency MBS in the fourth quarter of 2009. Approximately $0.6 million in OTTI charges was recorded in the first quarter of 2010, mainly related to equity securities of financial institutions in Puerto Rico. As of March 31, 2010, the remaining exposure to equity securities of local financial institutions in Puerto Rico amounted to $0.2 million. Also contributing to higher non-interest income was a realized gain of $0.4 million on the sale of certain GNMA pools that come from securitization transactions completed early in the quarter and a $0.1 million increase in service charges on deposits.
Non-Interest Expenses
Non-interest expenses increased $2.6 million to $91.4 million in the first quarter of 2010 primarily reflecting:
-- A $2.7 million increase in the federal deposit insurance premium, mainly related to the increase in the deposits base, -- A $2.1 million increase in employee compensation and benefit expenses, reflecting the impact in the fourth quarter of 2009 of reversals of bonuses and incentive compensation amounts accrued during the first nine months of 2009, and higher seasonal payroll tax expenses compared to the fourth quarter. This was partially offset by reductions in basic salary expenses of $1.5 million mainly due to a lower headcount. The number of full-time equivalent employees decreased by approximately 73, or 3%, in the first quarter of 2010, and -- A $1.8 million increase in charges to the reserve for probable losses on outstanding unfunded loan commitments.
The aforementioned increases were partially offset by a decline in certain expenses such as:
-- A $2.1 million decrease in business promotion expenses, due to a lower level of marketing and advertising activities for the Corporation's deposit and loan products, and -- A $1.2 million decrease in losses on REO operations, mainly due to lower write-offs and losses on the sale of repossessed properties.
Other reductions in operating expenses included costs for traveling, mileage, supplies and courier services. The Corporation continues to reduce costs through corporate-wide efforts to focus on its core business, including cost-cutting initiatives.
Income Taxes
For the first quarter ended March 31, 2010, the Corporation recognized income tax expense of $6.9 million, compared to $3.3 million for the fourth quarter of 2009. The variance is mainly related to an increase of $3.5 million to the valuation allowance associated with deferred tax assets created prior to 2010. As of March 31, 2010, deferred tax assets, net of a valuation allowance of $232.6 million, amounted to $104.5 million compared to $109.2 million as of December 31, 2009. The valuation allowance increased by approximately $40.9 million during the quarter as the Corporation continued to reserve deferred tax assets created in connection with the operations of its banking subsidiary FirstBank.
2010 FIRST QUARTER COMPARED TO 2009 FIRST QUARTER
Net loss for the quarter ended March 31, 2010 amounted to $107.0 million, or $(1.22) per diluted share, compared to net income of $21.9 million, or $0.07 per diluted share for the first quarter of 2009.
Significant income statement variances include:
-- A provision for loan and lease losses of $171.0 million, an increase of $111.5 million, as compared to $59.4 million for 2009, mainly due to sustained weak economic conditions that have resulted in higher non-performing and impaired loan levels, declines in collateral values and increases in charge-offs. The level of non-performing loans now is more than double the year-ago level. -- An income tax expense of $6.9 million compared to an income tax benefit of $14.2 million for 2009, mainly due to increases in the valuation allowance against deferred tax assets. Most of the deferred tax assets created in 2010 was fully reserved through increases to the valuation allowance. -- An increase of $6.8 million in non-interest expenses, driven by the $11.8 million increase in the deposit insurance premium, partially offset by a reduction in employees' compensation and benefits expenses of $2.5 million and lower losses on real estate owned operations. -- An unrealized loss of $1.7 million on the valuation of derivative instruments and financial liabilities measured at fair value compared to an unrealized gain of $3.6 million for the first quarter of 2009, an adverse fluctuation of $5.4 million, partially offset by a slight increase of $0.6 million in net interest income (excluding valuations) mainly due to a lower overall cost of funding. -- An increase of $15.3 million in non-interest income, driven by gains on sale of investment securities and higher gains from mortgage banking activities.
Net interest income, excluding valuations on derivative instruments and financial liabilities, increased by $0.6 million to $118.6 million for the first quarter of 2010 from $118.0 million for the first quarter of 2009. The net interest margin of 2.52% remained almost unchanged from 2.54% for the first quarter of 2009. The slight increase in absolute terms was mainly related to the favorable impact of lower deposit pricing and the strong core deposit growth that mitigated the impact of higher non-performing loans and the adverse impact of maintaining a higher liquidity.
For the first quarter of 2010, the Corporation recorded a provision for loan and lease losses of $171.0 million, compared to $59.4 million for the same period a year ago. The higher provision is mainly attributable to increases in specific reserves on impaired loans and adjusted general reserves for changes in historical loss rates and economic indicators. (See the Credit Quality section below for a full discussion.)
Non-interest income increased $15.3 million to $45.3 million for the first quarter of 2010, primarily reflecting:
-- The aforementioned gain of $10.7 million on the sale of the remaining VISA shares and an increase of $2.9 million on the sale of investment securities (mainly U.S. agency MBS). -- A $1.7 million increase in gains from mortgage banking activities, due to higher servicing fees, higher capitalization of servicing assets and lower charges to the valuation allowance.
Also contributing to the increase in non-interest income was higher fee income, mainly fees on loans and service charges on deposit accounts offset by lower income from vehicle rental activities. Service charges on deposit accounts increased by $0.3 million, as the Corporation continues to focus on its core business strategies. The lower income from vehicle rental activities was associated with the Corporation's decision to divest its short-term auto rental business during the fourth quarter of 2009.
Non-interest expenses increased $6.8 million to $91.4 million for the first quarter of 2010 primarily reflecting:
-- An increase of $11.8 million in the FDIC deposit insurance premium, as premium rates increased and the level of deposits grew, -- A $3.2 million increase in the reserve for probable losses on outstanding unfunded loan commitments, and -- A $2.1 million increase in professional service fees as the Corporation continued the implementation of key business strategies.
The aforementioned increases were partially offset by decreases in expenses such as:
-- A $2.5 million decrease in employee compensation and benefit expenses, mainly due to a lower headcount. The number of full time equivalent employees decreased by 236, or 8%, since December 31, 2008. -- A $1.7 million decrease in the loss of REO operations due to lower write-offs and losses on the sale of repossessed properties, -- A $0.9 million decrease in business promotion expenses, and -- The impact in the first quarter of 2009 of a $3.8 million impairment charge associated with the core deposit intangible asset in its Florida operations
For the first quarter ended March 31, 2010, the Corporation recognized income tax expense of $6.9 million related to the operations of profitable subsidiaries and increases to the valuation allowance of deferred tax assets, compared to an income tax benefit of $14.2 million for 2009. The negative variance is mainly due to increases in the valuation allowance against deferred tax assets. Most of the deferred tax assets created in 2010 were fully reserved. The valuation allowance increased by approximately $40.9 million during the first quarter of 2010.
CREDIT QUALITY
Though credit quality remained under pressure in the first quarter of 2010 and the performance was negatively impacted by the sustained economic weakness in Puerto Rico, there were some positive signs. For example, the level of non-performing loans increased at a much lower rate than the increases observed during most of 2009. There was an overall decline in non-accrual loans in the United States and absorption rates on residential construction projects financed by the Corporation increased over the last two quarters.
Non-Accrual Loans and Non-Performing Assets
Total non-accrual loans were $1.63 billion at March 31, 2010, and represented 12.35% of total loans receivable. This was up $75.5 million, or 4.83%, from $1.56 billion, or 11.23% of total loans receivable, at December 31, 2009. Period-end non-accrual loans in the year-ago quarter were $712 million, or 5.27% of total loans. The increase from the fourth quarter of 2009 primarily reflected increases in construction and commercial mortgage loans.
Total non-accrual construction loans increased $51.1 million, or 8%, from the end of the fourth quarter. The increase was mainly in Puerto Rico where non-accrual construction loans increased by $70.7 million. The increase was primarily concentrated in three relationships with an aggregate balance of $58.1 million that entered into non-accrual status during the first quarter, partially offset by charge-offs. Two of these three relationships, or $33.4 million, are associated with residential housing projects and the remaining relationship is related to a commercial project in Puerto Rico.
Non-accrual construction loans in Florida decreased by $19.7 million from the end of the fourth quarter of 2009. The decrease was a function of both charge-off activity as well as problem credit resolutions, including a restructured loan with an outstanding balance of $9.3 million restored to accrual status after a sustained period of repayment and currently in compliance with modified terms.
Non-accrual commercial mortgage loans increased by $33.9 million, or 17%, from the end of the fourth quarter. The increase was spread through our geographic segments. Total non-accrual commercial mortgage loans in Puerto Rico increased by $20.2 million primarily related to a $14.9 million strip mall relationship. Non-accrual commercial mortgage loans in Florida, increased by $13.8 million mainly related to a single $12.5 million relationship engaged in the acquisition of apartment complexes.
Non-accrual residential mortgage loans, which increased by $5.0 million, or 1%, mainly in Puerto Rico, were adversely affected by the continued trend of higher unemployment rates affecting consumers; partially offset by a decrease in the Florida portfolio. Non-accrual residential mortgage loans in Puerto Rico increased by $10.5 million, or 3%, from the end of the fourth quarter. Efforts to proactively address existing issues with loss mitigation and loan modification transactions have helped to minimize the inflow of new non-accrual loans. Approximately $336.0 million, or 75% of total non-accrual residential mortgage loans, have been written down to their net realizable value. In Florida, there was an overall decrease of $7.1 million in non-accrual residential mortgage loans mainly due to loans foreclosed and charge-offs. During the first quarter, the non-accrual residential mortgage loan portfolio in the Virgin Islands increased by $1.7 million.
Commercial and industrial (C&I) non-accrual loans decreased $13.2 million, or 5%, from the end of the fourth quarter. The decrease resulted from charge-offs, including a charge-off of $15.0 million associated with a loan extended to a local financial institution in Puerto Rico, and approximately $3.6 million related to the restoration to accrual status of restructured loans after a sustained period of repayment and pay-downs. This was partially offset by the inflow of non-accrual loans during the quarter, mainly in Puerto Rico and spread throughout several industries.
The levels of non-accrual consumer loans, including finance leases, remained stable showing a $1.4 million decrease during the first quarter. This resulted from a $1.8 million decrease in the Virgin Islands portfolio and a $0.6 million increase in the Florida portfolio. Non-accrual consumer loans in Puerto Rico remained essentially unchanged from the fourth quarter of 2009 with an increase of $0.1 million.
At March 31, 2010, approximately $196.3 million of loans placed in non-accrual status, mainly construction and commercial loans, were current or had delinquencies of less than 90 days in their interest payments. Collections are being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.
During the first quarter of 2010, interest income of approximately $1.6 million related to $938.6 million of non-accrual loans, mainly non-accrual construction and commercial loans, was applied against the related principal balances under the cost-recovery method. The Corporation will continue to evaluate restructuring alternatives to mitigate losses and enable borrowers to repay their loans under revised terms in an effort to preserve the value of the Corporation's interests over the long-term.
As of March 31, 2010, approximately $497.2 million, or 30%, of total non-performing loans have been charged-off to their net realizable value. (See Allowance for Loan and Lease Losses discussion below for additional information.)
Total non-performing assets, which include non-accrual loans, were $1.79 billion at March 31, 2010. This was up $79.2 million, or 5%, from $1.71 billion at the end of the fourth quarter of 2009, and significantly higher than $773.5 million at the end of the year-ago period. During the first quarter of 2010, the Corporation sold approximately $6.0 million of other real estate owned (OREO) properties at or close to their carrying amounts, thus no significant gains or losses were recorded at the time of sale.
The over 90-day delinquent, but still accruing, loans to total loans receivable ratio, excluding loans guaranteed by the U.S. Government, was 0.88% at March 31, 2010, up from 0.69% at the end of the fourth quarter, but down 39 basis points from a year-ago.
Allowance for Loan and Lease Losses
The following table sets forth an analysis of the allowance for loan and lease losses during the periods indicated:
Quarter Ended (Dollars in thousands) March 31, December 31, March 31, 2010 2009 2009 Allowance for loan and lease losses, $ 528,120 $ 471,484 $ 281,526 beginning of period Provision (recovery) for loan and lease losses: Residential mortgage 28,739 8,206 13,249 Commercial mortgage 37,719 22,406 3,645 Commercial and Industrial (7,844 ) 28,003 6,375 Construction 99,300 64,196 30,557 Consumer and finance leases 13,051 14,376 5,603 Total provision for loan and lease 170,965 137,187 59,429 losses Loans net charge-offs: Residential mortgage (13,346 ) (7,488 ) (7,162 ) Commercial mortgage (19,297 ) (5,221 ) (488 ) Commercial and Industrial (23,776 ) (7,739 ) (7,419 ) Construction (53,215 ) (44,906 ) (8,523 ) Consumer and finance leases (14,148 ) (15,197 ) (14,832 ) Net charge-offs (123,782 ) (80,551 ) (38,424 ) Allowance for loan and lease losses, $ 575,303 $ 528,120 $ 302,531 end of period Allowance for loan and lease losses to 4.33 % 3.79 % 2.24 % period end total loans receivable Net charge-offs (annualized) to average 3.65 % 2.34 % 1.16 % loans outstanding during the period Provision for loan and lease losses to 1.38x 1.70x 1.55x net charge-offs during the period
The provision for loan and lease losses increased by $33.8 million to $171.0 million, or 24.6%, compared to the provision recorded for the fourth quarter of 2009. The increase is mainly related to increases to specific reserves on impaired loans as well as increases in charge-offs and the sustained deterioration of economic conditions that have caused increases in reserve factors used to determine general reserves. Higher than normalized charge-offs continued during the first quarter of 2010. Much of the increase in the provision is related to the Corporation's construction loan portfolio in Puerto Rico, where low absorption rates and pressures on property values continue to adversely impact the performance of this portfolio. However, the Corporation has experienced an improvement in absorption rates on its residential projects that going forward should contribute to slowdown further significant additions to the reserve for construction loans. Additionally, the commercial and residential mortgage loan portfolio in Puerto Rico and the United States continue to be affected by higher than normal loss rates and declines in collateral values, requiring higher provisions.
The Corporation recorded an $88.0 million provision in the first quarter for its loan portfolio in Puerto Rico compared to $79.1 million recorded for the fourth quarter, for an increase of $8.9 million. The increase is mainly related to the construction and the commercial and residential mortgage loan portfolios. The provision for construction loans in Puerto Rico increased by $27.8 million mainly due to additions to specific reserves and adjustments to the reserve factors used to determine general reserves driven by increases in charge-offs. The provision for residential mortgage loans in Puerto Rico increased by $10.6 million and the provision for commercial mortgage loans in Puerto Rico increased by $7.7 million, both affected by negative trends in loss rates and falling property values. The aforementioned increases in the provision were partially offset by a reduction of $35.8 million in the provision for C&I loans, mainly due to certain loans individually evaluated during the first quarter of 2010 that require lower reserves based on collateral values and an overall decrease in the C&I portfolio.
With respect to the loan portfolio in the United States, the Corporation recorded a $71.2 million provision for the first quarter of 2010 compared to $55.5 million provision for the fourth quarter of 2009. This increase of $15.7 million is mainly related to the residential and commercial mortgage loan portfolio, which were both affected by negative trends in loss rates and falling property values.
The provision recorded for the loan portfolio in the Virgin Islands amounted to $11.8 million in the first quarter of 2010, an increase of $9.3 million compared to the fourth quarter of 2009, mainly related to a $7.4 million increase in the construction loan portfolio provision.
The allowance for loan and lease losses increased to $575.3 million, or 4.33% of total loans receivable, as of March 31, 2010 from $528.1 million, or 3.79% of total loans receivable as of December 31, 2009. The allowance to non-performing loans ratio as of March 31, 2010 was 35.09%, compared to 33.77% as of December 31, 2009. The increase in the ratio is attributable in part to increases in reserve factors for classified loans and additional charges to specific reserves.
The following table sets forth information concerning the ratio of the allowance to non-performing loans as of March 31, 2010 and December 31, 2009 by loan category:
Commercial Consumer (Dollars in Residential Construction and thousands) Mortgage Mortgage C&I Loans Loans Total Loans Loans Finance Leases As of March 31, 2010 Non-performing loans charged-off to $ 335,983 $ 17,497 $ 34,028 $ 109,693 $ - $ 497,201 realizable value Other non-performing 110,693 212,971 194,085 575,722 48,672 1,142,143 loans Total non-performing $ 446,676 $ 230,468 $ 228,113 $ 685,415 $ 48,672 $ 1,639,344 loans Allowance to non-performing 10.42 % 35.75 % 67.68 % 30.67 % 167.96 % 35.09 % loans Allowance to non-performing loans, excluding non-performing loans charged-off to 42.06 % 38.69 % 79.55 % 36.51 % 167.96 % 50.37 % realizable value As of December 31, 2009 Non-performing loans charged-off to $ 320,224 $ 38,421 $ 19,244 $ 139,787 $ - $ 517,676 realizable value Other non-performing 121,418 158,114 222,072 494,542 50,041 1,046,187 loans Total non-performing $ 441,642 $ 196,535 $ 241,316 $ 634,329 $ 50,041 $ 1,563,863 loans Allowance to non-performing 7.06 % 32.55 % 77.08 % 25.87 % 165.56 % 33.77 % loans Allowance to non-performing loans, excluding non-performing loans charged-off to 25.67 % 40.46 % 83.76 % 33.19 % 165.56 % 50.48 % realizable value
The following table sets forth information concerning the composition of the Corporation's allowance for loan and lease losses as of March 31, 2010 and December 31, 2009 by loan category and by whether the allowance and related provisions were calculated individually for impairment purposes or through a general valuation allowance.
Residential Commercial Consumer and (Dollars in C&I Loans Construction Total thousands) Mortgage Mortgage Loans Finance Loans Loans Leases As of March 31, 2010 Impaired loans without specific reserves: Principal balance of loans, net $ 444,948 $ 31,819 $ 75,422 $ 183,456 $ - $ 735,645 of charge-offs Impaired loans with specific reserves: Principal balance of loans, net 51,020 201,660 265,799 591,962 - 1,110,441 of charge-offs Allowance for loan 1,975 44,878 74,408 124,039 - 245,300 and lease losses Allowance for loan and lease 3.87 % 22.25 % 27.99 % 20.95 % 0.00 % 22.09 % losses to principal balance Loans with general allowance: Principal balance of 3,082,674 1,314,228 4,496,585 681,609 1,852,385 11,427,481 loans Allowance for loan 44,583 37,516 79,979 86,174 81,751 330,003 and lease losses Allowance for loan and lease 1.45 % 2.85 % 1.78 % 12.64 % 4.41 % 2.89 % losses to principal balance Total portfolio, excluding loans held for sale: Principal balance of $ 3,578,642 $ 1,547,707 $ 4,837,806 $ 1,457,027 $ 1,852,385 $ 13,273,567 loans Allowance for loan 46,558 82,394 154,387 210,213 81,751 575,303 and lease losses Allowance for loan and lease 1.30 % 5.32 % 3.19 % 14.43 % 4.41 % 4.33 % losses to principal balance As of December 31, 2009 Impaired loans without specific reserves: Principal balance of loans, net $ 384,285 $ 62,920 $ 48,943 $ 100,028 $ - $ 596,176 of charge-offs Impaired loans with specific reserves: Principal balance of loans, net 60,040 159,284 243,123 597,641 - 1,060,088 of charge-offs Allowance for loan 2,616 30,945 62,491 86,093 - 182,145 and lease losses Allowance for loan and lease 4.36 % 19.43 % 25.70 % 14.41 % 0.00 % 17.18 % losses to principal balance Loans with general allowance: Principal balance of 3,151,183 1,368,617 5,059,363 794,920 1,898,104 12,272,187 loans Allowance for loan 28,549 33,027 123,516 78,035 82,848 345,975 and lease losses Allowance for loan and lease 0.91 % 2.41 % 2.44 % 9.82 % 4.36 % 2.82 % losses to principal balance Total portfolio, excluding loans held for sale: Principal balance of $ 3,595,508 $ 1,590,821 $ 5,351,429 $ 1,492,589 $ 1,898,104 $ 13,928,451 loans Allowance for loan 31,165 63,972 186,007 164,128 82,848 528,120 and lease losses Allowance for loan and lease 0.87 % 4.02 % 3.48 % 11.00 % 4.36 % 3.79 % losses to principal balance
Net Charge-Offs
Total net charge-offs for the first quarter of 2010 were $123.8 million or 3.65% of average loans on an annualized basis, compared to $80.6 million or an annualized 2.34% of average loans for the fourth quarter of 2009. Even though the increase in net charge-offs in absolute numbers was mainly in Puerto Rico, loss rates (charge-offs to average loans) for all major loan categories continued to be significantly higher in the United States than in Puerto Rico.
Construction loans net charge-offs in the first quarter were $53.2 million, or an annualized 14.35%, up from $44.9 million, or an annualized 11.34% of related loans, in the fourth quarter of 2009. First quarter results were substantially impacted by individual charge-offs in excess of $5 million. There was $33.5 million associated with three residential housing projects. The increase from the prior quarter was mainly related to the Puerto Rico portfolio. Construction loans net charge-offs in Puerto Rico were $33.7 million, an increase of $31.8 million over fourth quarter levels, including $18.5 million associated with two residential projects. Construction loans net charge-offs in the United States of $19.5 million, or $23.5 million below fourth quarter levels, were mainly related to a single residential project that was previously reserved. The Corporation continued its ongoing management efforts including obtaining updated appraisals on properties and assessing a project's status within the context of market environment expectations. This portfolio remains susceptible to the ongoing housing market disruptions, particularly in Puerto Rico. In the United States, based on the portfolio management process, including charge-off activity over the past year and several sales of problem credits, the credit issues in this portfolio have been substantially addressed. The Corporation is engaged in continuous efforts to identify alternatives that enable borrowers to repay their loans while protecting the Corporation's investments.
C&I loans net charge-offs in the first quarter of 2010 were $23.8 million, or an annualized 1.88%, an increase of $16.0 million when compared to the $7.7 million, or an annualized 0.60% of related loans, recorded in the 2009 fourth quarter. There was a $15.0 million charge-off associated with a loan to a financial institution in Puerto Rico that was adequately reserved prior to 2010. Remaining C&I loans net charge-offs in the first quarter of 2010 were concentrated in Puerto Rico, distributed across several industries, with the largest individual charge-off amounting to $1.2 million.
Commercial mortgage loans net charge-offs in the first quarter of 2010 were $19.3 million, or an annualized 4.85%, a $14.1 million increase from the fourth quarter of 2009. First quarter results were substantially impacted by charge-offs of $13.9 million associated with two impaired loans in Florida that were sold during the first quarter. These loans, which in aggregate amounted to $31.4 million, were adequately reserved prior to 2010 and additional charges to the reserve during the first quarter were not necessary.
Residential mortgage net charge-offs were $13.3 million, or an annualized 1.50% of related average loans. This was up from $7.5 million, or an annualized 0.84%, of related average balances in the fourth quarter of 2009. The higher loss level compared with the prior quarter reflected increases in delinquency levels, resulting from continued deterioration in economic conditions in Puerto Rico and high unemployment levels, as well as reductions in property values. Approximately $9.8 million in charge-offs for the first quarter ($5.2 million in Puerto Rico, $4.1 million in Florida and $0.5 million in Virgin Islands) resulted from valuations, for impairment purposes, of residential mortgage loan portfolios considered homogeneous given high delinquency and loan-to-value levels, compared to $4.3 million recorded in the fourth quarter. Total residential mortgage loan portfolios evaluated for impairment purposes amounted to approximately $336.0 million as of March 31, 2010, and have been charged-off to their net realizable value, representing approximately 75% of the total non-performing residential mortgage loan portfolio outstanding as of March 31, 2010. Net charge-offs for residential mortgage loans also include $3.3 million related to loans foreclosed during the first quarter, up from $3.0 million recorded for loans foreclosed in the fourth quarter. Consistent with the Corporation's assessment of the value of properties, current and future market conditions, management is executing strategies to accelerate the sale of the real estate acquired in satisfaction of debt (REO). The ratio of net charge-offs to average loans on the Corporation's residential mortgage loan portfolio of 1.50% for the quarter ended March 31, 2010 is lower than the approximately 2.74% average charge-off rate for commercial banks in the U.S. mainland for the fourth quarter of 2009, as per statistical releases published by the Federal Reserve and loss rates in the Corporation's Puerto Rico operations are more than five times lower than loss rates experienced in the Florida market.
Net charge-offs of consumer loans and finance leases in the first quarter of 2010 were $14.1 million compared to net charge-offs of $15.2 million for the fourth quarter of 2009. Annualized net charge-offs as a percent of related loans decreased to 3.01% from 3.16% for the fourth quarter. Performance of this portfolio on both and absolute and relative terms continued to be consistent with management views regarding the underlying quality of the portfolio. The level of delinquencies has improved compared to the prior quarter, further supporting management's views of improved performance going forward.
The following table presents annualized net charge-offs to average loans held-in-portfolio:
Quarter Ended March 31, December 31, September 30, June 30, March 31, 2010 2009 2009 2009 2009 Residential 1.50 % 0.84 % 1.21 % 0.39 % 0.82 % mortgage Commercial 4.85 % 1.35 % 1.35 % 3.71 % 0.13 % mortgage Commercial and 1.88 % 0.60 % 0.49 % 1.12 % 0.65 % Industrial Construction 14.35 % 11.34 % 11.80 % 20.38 % 2.21 % Consumer and 3.01 % 3.16 % 3.09 % 3.12 % 2.84 % finance leases Total loans 3.65 % 2.34 % 2.53 % 3.85 % 1.16 %
The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected for the entire year, or in subsequent periods.
The following table presents annualized net charge-offs to average loans held-in-portfolio by geographic segment:
Quarter Ended March 31, December 31, March 31, 2010 2009 2009 PUERTO RICO: Residential mortgage 1.11 % 0.62 % 0.86 % Commercial mortgage 0.71 % 0.80 % 0.20 % Commercial and Industrial 1.92 % 0.63 % 0.61 % Construction 13.45 % 0.76 % 3.17 % Consumer and finance leases 2.95 % 3.05 % 2.61 % Total loans 2.80 % 1.03 % 1.19 % VIRGIN ISLANDS: Residential mortgage 0.47 % 0.00 % 0.03 % Commercial mortgage 0.00 % 0.00 % 0.00 % Commercial and Industrial (1) -0.02 % 0.06 % 0.56 % Construction 0.15 % 0.00 % 0.00 % Consumer and finance leases 3.82 % 3.44 % 4.00 % Total loans 0.55 % 0.33 % 0.60 % FLORIDA: Residential mortgage 5.70 % 3.42 % 1.43 % Commercial mortgage 13.23 % 2.58 % 0.00 % Commercial and Industrial 10.78 % 0.53 % 6.28 % Construction 27.23 % 44.34 % 1.37 % Consumer and finance leases 3.96 % 7.39 % 9.95 % Total loans 13.90 % 14.92 % 1.31 % 1- For the first quarter of 2010, recoveries in commercial and industrial loans in the Virgin Islands exceeded charge-offs.
Given the present economic outlook in the Corporation's principal markets and in spite of actions taken, the Corporation may experience further deterioration in its portfolios, which may result in higher credit losses and additions to reserve balances.
Financial Condition and Operating Data
Total assets decreased to approximately $18.9 billion as of March 31, 2010, down $777.5 million from approximately $19.6 billion as of December 31, 2009. The decrease is primarily related to a $736.7 million reduction in investment securities and a net decrease of $702.9 million in the loan portfolio, partially offset by an increase of $626.1 million in cash and cash equivalents. The Corporation's decrease in investment securities is mainly related to the sale of approximately $385 million in U.S. agency MBS during the first quarter of 2010, the call of approximately $250 million of U.S. agency debt securities prior to their contractual maturity, and principal repayments of MBS. The decrease is consistent with the Corporation's decision to deleverage its balance sheet to, among other things and in line with market trends, further strengthen its capital position. The decrease in the loan portfolio was largely attributable to the repayment of a $500 million facility extended to the Puerto Rico government coupled with the aforementioned sales of impaired loans and a higher allowance for loan and lease losses. The increase in cash and cash equivalents, comparing end-of period balances, is mainly related to increases in reverse repos and U.S. treasury bills money market investments.
As previously discussed, a key objective in 2010 was to strengthen balance sheet liquidity due to potential disruptions from the expected consolidation of the Puerto Rico banking industry. Proceeds from sales and prepayments of MBS and loans were used, in part, to increase liquidity. However, the Corporation continued with its targeted lending activities and total loan origination for the first quarter amounted to approximately $637 million, including an aggregate of $76 million granted to the Puerto Rico and Virgin Islands governments, compared to total loan originations of $1.2 billion for the fourth quarter of 2009, which included an aggregate of $473 million extended to the Puerto Rico and Virgin Islands governments.
As of March 31, 2010, liabilities totaled $17.4 billion, a decrease of approximately $667.0 million, as compared to $18.0 billion as of December 31, 2009. The decrease in total liabilities is mainly attributable to a decrease of $576.6 million in repurchase agreements, mainly maturing short-term repurchase agreements, as well as a $300 million decrease in short-term FED advances. This was partially offset by an increase of $209.2 million in total deposits, mainly core deposits in both the Florida and Puerto Rico markets. Total deposits, excluding brokered CDs, increased by $418.3 million ($337.3 million in Florida, $56.8 million in Puerto Rico, and $24.2 million in the Virgin Islands) reflecting an increase in money market, savings and interest-bearing checking accounts of $282.8 million and an increase of $129.1 million in certificates of deposit (mainly retail CDs in Florida).
The Corporation's stockholders' equity amounted to $1.5 billion as of March 31, 2010, a decrease of $110.5 million compared to the balance as of December 31, 2009, driven by the net loss of $107.0 million for the first quarter, as well as a decrease in accumulated other comprehensive income of $3.5 million related to the aforementioned sale of investments and changes in the fair value of investment securities. As previously reported, the Corporation decided to suspend the payment of common and preferred dividends, effective with the preferred dividend for the month of August 2009.
The Corporation continued well-capitalized, having approximately $430 million and $796 million of total capital and Tier 1 capital as of March 31, 2010, respectively, in excess of minimum well-capitalized requirements of 10% and 6%, respectively. As of March 31, 2010, the total regulatory capital ratio was an estimated 13.2% and the Tier 1 capital ratio was an estimated 11.9%.
The Corporation's tangible common equity ratio was 2.74% as of March 31, 2010, compared to 3.20% as of December 31, 2009, and the Tier 1 common equity to risk-weighted assets ratio as of March 31, 2010 was 3.34% compared to 4.10% as of December 31, 2009. (See Basis of Presentation below for a discussion of these non-GAAP measures.) The following table is a reconciliation of the Corporation's tangible common equity and tangible assets for the periods ended March 31, 2010, December 31, 2009 and March 31, 2009, respectively:
(In thousands) As of March 31, December 31, March 31, 2010 2009 2009 Tangible Equity: Total equity - GAAP $ 1,488,543 $ 1,599,063 $ 1,977,240 Preferred equity (929,660 ) (928,508 ) (925,162 ) Goodwill (28,098 ) (28,098 ) (28,098 ) Core deposit intangible (15,934 ) (16,600 ) (19,273 ) Tangible common equity $ 514,851 $ 625,857 $ 1,004,707 Tangible Assets: Total assets - GAAP $ 18,850,694 $ 19,628,448 $ 19,709,150 Goodwill (28,098 ) (28,098 ) (28,098 ) Core deposit intangible (15,934 ) (16,600 ) (19,273 ) Tangible assets $ 18,806,662 $ 19,583,750 $ 19,661,779 Common shares outstanding 92,542 92,542 92,546 Tangible common equity ratio 2.74 % 3.20 % 5.11 % Tangible book value per common $ 5.56 $ 6.76 $ 10.86 share
The following table reconciles stockholders' equity (GAAP) to Tier 1 common equity:
(Dollars in thousands) As of March 31, December 31, March 31, 2010 2009 2009 Tier 1 Common Equity: Total equity - GAAP $ 1,488,543 $ 1,599,063 $ 1,977,240 Qualifying preferred stock (929,660 ) (928,508 ) (925,162 ) Unrealized (gain) loss on available-for-sale securities (22,948 ) (26,617 ) (82,751 ) (1) Disallowed deferred tax asset (40,522 ) (11,827 ) (83,302 ) (2) Goodwill (28,098 ) (28,098 ) (28,098 ) Core deposit intangible (15,934 ) (16,600 ) (19,273 ) Cumulative change gain in fair value of liabilities accounted for under a fair (951 ) (1,535 ) (3,555 ) value option Other disallowed assets (24 ) (24 ) (625 ) Tier 1 common equity $ 450,406 $ 585,854 $ 834,474 Total risk-weighted assets $ 13,480,026 $ 14,303,496 $ 14,141,259 Tier 1 common equity to 3.34 % 4.10 % 5.90 % risk-weighted assets ratio 1- Tier 1 capital excludes net unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on available-for-sale equity securities with readily determinable fair values, in accordance with regulatory risk-based capital guidelines. In arriving at Tier 1 capital, institutions are required to deduct net unrealized losses on available-for-sale equity securities with readily determinable fair values, net of tax. 2- Approximately $69 million of the Corporation's deferred tax assets at March 31, 2010 (December 31, 2009 - $111 million; March 31, 2009 - $59 million) were included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $41 million of such assets at March 31, 2010 (December 31, 2009 - $12 million; March 31, 2009 - $83 million) exceeded the limitation imposed by these guidelines and, as "disallowed deferred tax assets," were deducted in arriving at Tier 1 capital. According to regulatory capital guidelines, the deferred tax assets that are dependent upon future taxable income are limited for inclusion in Tier 1 capital to the lesser of: (i) the amount of such deferred tax asset that the entity expects to realize within one year of the calendar quarter end-date, based on its projected future taxable income for that year or (ii) 10% of the amount of the entity's Tier 1 capital. Approximately $5 million of the Corporation's other net deferred tax liability at March 31, 2010 (December 31, 2009 - $4 million; March 31, 2009 - $1 million) represented primarily the deferred tax effects of unrealized gains and losses on available-for-sale debt securities, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines.
Liquidity
The Corporation continued managing its liquidity in a proactive manner, and maintained an adequate position. Multiple measures are utilized to monitor the Corporation's liquidity position, including basic surplus and volatile liabilities measures. The Corporation has maintained basic surplus (cash, short-term assets minus short-term liabilities, and secured lines of credit) well in excess of the self-imposed minimum limit of 5% of total assets. As of March 31, 2010, the estimated basic surplus ratio was approximately 12% including un-pledged investment securities, FHLB lines of credit, and cash. At the end of the quarter, the Corporation had $464 million available for additional credit on FHLB lines of credit. Unpledged liquid securities as of March 31, 2010 mainly consisted of fixed-rate U.S. agency debentures and MBS totaling approximately $818.3 million. The Corporation does not rely on uncommitted inter-bank lines of credit (federal funds lines) to fund its operations and does not include them in the basic surplus computation. The Corporation decided to further increase its liquidity levels due to potential disruptions from the expected consolidation of the Puerto Rico banking industry.
Basis of Presentation
Use of Non-GAAP Financial Measures
This press release contains GAAP financial measures and non-GAAP financial measures. Non-GAAP financial measures are set forth when management believes they will be helpful to an understanding of the Corporation's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the text or in the attached tables of this earnings release.
Net Interest Income, Excluding Valuations and on a Tax-Equivalent Basis
Net interest income, interest rate spread and net interest margin are reported on a tax equivalent basis and excluding the unrealized changes in the fair value of derivative instruments and financial liabilities elected to be measured at fair value. The presentation of net interest income excluding valuations provides additional information about the Corporation's net interest income and facilitates comparability and analysis. The changes in the fair value of derivative instruments and unrealized gains and losses on liabilities measured at fair value 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 certain loans, on a common basis that facilitates comparison of results to results of peers.
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 measures generally used by financial analysts and investment bankers to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill and core deposit intangibles. Tangible assets are total assets less goodwill and core deposit intangibles. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with 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 accounting method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets or 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.
Tier 1 Common Equity to Risk-Weighted Assets Ratio
The Tier 1 common equity to risk-weighted assets ratio is calculated by dividing (a) tier 1 capital less non-common elements including qualifying perpetual preferred stock and qualifying trust preferred securities, by (b) risk-weighted assets, which assets are calculated in accordance with applicable bank regulatory requirements. The Tier 1 common equity ratio is not required by GAAP or on a recurring basis by applicable bank regulatory requirements. However, this ratio was used by the Federal Reserve in connection with its stress test administered to the 19 largest U.S. bank holding companies under the Supervisory Capital Assessment Program (SCAP), the results of which were announced on May 7, 2009. Management is currently monitoring this ratio, along with the other ratios discussed above, in evaluating the Corporation's capital levels and believes that, at this time, the ratio may be of interest to investors.
FIRST BANCORP Condensed Consolidated Statements of (Loss) Income Quarter Ended March 31, December 31, March 31, (In thousands, except per share 2010 2009 2009 information) Net interest income: Interest income $ 220,988 $ 243,449 $ 258,323 Interest expense 104,125 106,152 136,725 Net interest income 116,863 137,297 121,598 Provision for loan and lease losses 170,965 137,187 59,429 Net interest (loss) income after (54,102 ) 110 62,169 provision for loan and lease losses Non-interest income: Other service charges on loans 1,756 1,982 1,529 Service charges on deposit accounts 3,468 3,357 3,165 Mortgage banking activities 2,500 2,426 806 Net gain on investments and impairments 30,764 24,387 17,450 Other non-interest income 6,838 6,655 7,103 Total non-interest income 45,326 38,807 30,053 Non-interest expenses: Employees' compensation and benefits 31,728 29,617 34,242 Occupancy and equipment 14,851 14,822 14,774 Business promotion 2,205 4,327 3,116 Professional fees 5,287 4,883 3,186 Taxes, other than income taxes 3,821 3,936 4,001 Insurance and supervisory fees 18,518 15,114 6,672 Net loss on real estate owned (REO) 3,693 4,847 5,375 operations Other non-interest expenses 11,259 11,262 13,162 Total non-interest expenses 91,362 88,808 84,528 (Loss) income before income taxes (100,138 ) (49,891 ) 7,694 Income tax (expense) benefit (6,861 ) (3,311 ) 14,197 Net (loss) income $ (106,999 ) $ (53,202 ) $ 21,891 Net (loss) income attributable to common $ (113,151 ) $ (59,334 ) $ 6,773 stockholders Net (loss) income per common share: Basic $ (1.22 ) $ (0.64 ) $ 0.07 Diluted $ (1.22 ) $ (0.64 ) $ 0.07
FIRST BANCORP Condensed Consolidated Statements of Financial Condition As of March 31, December 31, (In thousands, except for share information) 2010 2009 ASSETS Cash and due from banks $ 675,551 $ 679,798 Money market investments: Federal funds sold and securities purchased 331,677 1,140 under agreements to sell Time deposits with other financial institutions 600 600 Other short-term investments 322,371 22,546 Total money market investments 654,648 24,286 Investment securities available for sale, at 3,470,988 4,170,782 fair value Investment securities held to maturity, at 564,931 601,619 amortized cost Other equity securities 69,680 69,930 Total investment securities 4,105,599 4,842,331 Loans, net of allowance for loan and lease losses of $575,303 (December 31, 2009 - $528,120) 12,698,264 13,400,331 Loans held for sale, at lower of cost or market 19,927 20,775 Total loans, net 12,718,191 13,421,106 Premises and equipment, net 199,072 197,965 Other real estate owned 73,444 69,304 Accrued interest receivable on loans and 70,955 79,867 investments Due from customers on acceptances 726 954 Accounts receivable from investment sales 62,575 - Other assets 290,203 312,837 Total assets $ 18,850,964 $ 19,628,448 LIABILITIES Deposits: Non-interest-bearing deposits $ 703,394 $ 697,022 Interest - bearing deposits 12,174,840 11,972,025 Total deposits 12,878,234 12,669,047 Advances from the Federal Reserve 600,000 900,000 Securities sold under agreements to repurchase 2,500,000 3,076,631 Advances from the Federal Home Loan Bank (FHLB) 960,440 978,440 Notes payable 28,313 27,117 Other borrowings 231,959 231,959 Bank acceptances outstanding 726 954 Accounts payable and other liabilities 162,749 145,237 Total liabilities 17,362,421 18,029,385 STOCKHOLDERS' EQUITY Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,004,000 shares at an aggregate liquidation value of $950,100 929,660 928,508 Common stock, $1 par value, authorized 250,000,000 shares; issued 102,440,522 102,440 102,440 Less: Treasury stock (at cost) (9,898 ) (9,898 ) Common stock outstanding, 92,542,722 shares 92,542 92,542 outstanding Additional paid-in capital 134,247 134,223 Legal surplus 299,006 299,006 Retained earnings 10,140 118,291 Accumulated other comprehensive income 22,948 26,493 Total stockholders'equity 1,488,543 1,599,063 Total liabilities and stockholders'equity $ 18,850,964 $ 19,628,448
About First BanCorp
First BanCorp is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the Virgin Islands and Florida, and of FirstBank Insurance Agency. First BanCorp and FirstBank Puerto Rico all operate within U.S. banking laws and regulations. The Corporation operates a total of 173 branches, stand-alone offices and in-branch service centers throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp., a small loan company; First Leasing and Rental Corp., a leasing company; FirstBank Puerto Rico Securities, a broker-dealer subsidiary; First Management of Puerto Rico; and FirstMortgage, Inc., a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Insurance VI, an insurance agency, and First Express, a small loan company. First BanCorp's common and publicly-held preferred shares trade on the New York Stock Exchange under the symbols FBP, FBPPrA, FBPPrB, FBPPrC, FBPPrD and FBPPrE. Additional information about First BanCorp may be found at www.firstbankpr.com.
Safe Harbor
This press release may contain "forward-looking statements" concerning the Corporation's future economic performance. The words or phrases "expect," "anticipate," "look forward," "should," "believes" and similar expressions are meant to identify "forward-looking statements" within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by such section. The Corporation wishes to caution readers not to place undue reliance on any such "forward-looking statements," which speak only as of the date made, and to advise readers that various factors, including, but not limited to, uncertainty about whether the Corporation's actions to improve its capital structure will have their intended effect, the risk of being subject to possible regulatory action, the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of the Corporation's loans and other assets, including the Corporation's construction and commercial real estate loan portfolios, which have contributed and may continue to contribute to, among other things, the increase in the levels of non-performing assets, charge-offs and the provision expense; adverse changes in general economic conditions in the United States and in Puerto Rico, including the interest rate scenario, market liquidity, housing absorption rates, real estate prices and disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources and affect demand for all of the Corporation's products and services and the value of the Corporation's assets, including the value of derivative instruments used for protection from interest rate fluctuations; the Corporation's reliance on brokered certificates of deposit and its ability to continue to rely on the issuance of brokered certificates of deposit to fund operations and provide liquidity, an adverse change in the Corporation's ability to attract new clients and retain existing ones; a decrease in demand for the Corporation's products and services and lower revenues and earnings because of the continued recession and any consolidation of the banking industry in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government; a need to recognize additional impairments on financial instruments or goodwill relating to acquisitions, uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the United States and the U.S. and British Virgin Islands, which could affect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from prior results and anticipated or projected results, uncertainty about the effectiveness of the various actions undertaken to stimulate the United States economy and stabilize the United States financial markets, and the impact such actions may have on the Corporation's business, financial condition and results of operations; changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve System, the Federal Deposit Insurance Corporation, government-sponsored housing agencies and local regulators in Puerto Rico and the U.S. and British Virgin Islands; the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in our non-interest expense, risks of not being able to generate sufficient income to realize the benefit of the deferred tax asset; risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.; changes in the Corporation's expenses associated with acquisitions and dispositions; developments in technology; the impact of Doral Financial Corporation's financial condition on the repayment of its outstanding secured loans to the Corporation; risks associated with further downgrades in the credit ratings of the Corporation's securities; general competitive factors and industry consolidation; and the possible future dilution to holders of common stock resulting from additional issuances of common stock or securities convertible into common stock. 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.
EXHIBIT A Table 1 - Selected Financial Data (In thousands, except for per share and Quarter Ended financial ratios) March 31, December 31, March 31, 2010 2009 2009 Condensed Income Statements: Total interest income $ 220,988 $ 243,449 $ 258,323 Total interest expense 104,125 106,152 136,725 Net interest income 116,863 137,297 121,598 Provision for loan and lease losses 170,965 137,187 59,429 Non-interest income 45,326 38,807 30,053 Non-interest expenses 91,362 88,808 84,528 (Loss) income before income taxes (100,138 ) (49,891 ) 7,694 Income tax (expense) benefit (6,861 ) (3,311 ) 14,197 Net (loss) income (106,999 ) (53,202 ) 21,891 Net (loss) income attributable to common (113,151 ) (59,334 ) 6,773 stockholders Per Common Share Results: Net (loss) income per share basic $ (1.22 ) $ (0.64 ) $ 0.07 Net (loss) income per share diluted $ (1.22 ) $ (0.64 ) $ 0.07 Cash dividends declared $ - $ - $ 0.07 Average shares outstanding 92,521 92,514 92,511 Average shares outstanding diluted 92,521 92,514 92,511 Book value per common share $ 6.04 $ 7.25 $ 11.37 Tangible book value per common share (1) $ 5.56 $ 6.76 $ 10.86 Selected Financial Ratios (In Percent): Profitability: Return on Average Assets (2.25 ) (1.08 ) 0.45 Interest Rate Spread (2) 2.45 2.75 2.47 Net Interest Margin (2) 2.73 3.03 2.85 Return on Average Total Equity (27.07 ) (12.48 ) 4.66 Return on Average Common Equity (68.06 ) (30.54 ) 2.65 Average Total Equity to Average Total 8.30 8.67 9.73 Assets Tangible common equity ratio (1) 2.74 3.20 5.11 Dividend payout ratio - - 95.72 Efficiency ratio (3) 56.33 50.43 55.74 Asset Quality: Allowance for loan and lease losses to 4.33 3.79 2.24 loans receivable Net charge-offs (annualized) to average 3.65 2.34 1.16 loans Provision for loan and lease losses to 138.12 170.31 154.66 net charge-offs Non-performing assets to total assets 9.49 8.71 3.92 Non-performing loans to total loans 12.35 11.23 5.27 receivable Allowance to total non-performing loans 35.09 33.77 42.49 Allowance to total non-performing loans excluding residential real estate loans 48.24 47.06 76.28 Other Information: Common Stock Price: End of period $ 2.41 $ 2.30 $ 4.26 1- Non-GAAP measure. See pages 18-19 for GAAP to Non-GAAP reconciliations. 2- On a tax-equivalent basis. See page 3 for GAAP to Non-GAAP reconciliations and refer to discussions in Tables 2 below. 3- Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring income and changes in the fair value of derivative instruments and financial liabilities measured at fair value.
Table 2 - Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax Equivalent Basis) (Dollars in thousands) Average volume Interest income (1) / Average rate (1) expense March 31, December March 31, March December March March December March 31, 31, 31, 31, 31, 31, 31, Quarter ended 2010 2009 2009 2010 2009 2009 2010 2009 2009 Interest-earning assets: Money market & other short-term $ 904,600 $ 268,295 $ 114,837 $ 436 $ 184 $ 91 0.20% 0.27% 0.32% investments Government 1,283,568 1,316,211 1,141,091 8,820 9,109 19,601 2.79% 2.75% 6.97% obligations (2) Mortgage-backed 3,266,239 3,843,609 4,254,355 40,582 51,971 63,421 5.04% 5.36% 6.05% securities Corporate bonds 2,000 2,000 7,711 29 30 33 5.88% 5.95% 1.74% FHLB stock 68,380 73,435 71,119 843 896 360 5.00% 4.84% 2.05% Equity 1,802 1,977 2,360 15 72 18 3.38% 14.45% 3.09% securities Total 5,526,589 5,505,527 5,591,473 50,725 62,262 83,524 3.72% 4.49% 6.06% investments (3) Residential 3,554,096 3,568,367 3,496,429 53,599 54,200 54,049 6.12% 6.03% 6.27% mortgage loans Construction 1,483,314 1,584,282 1,545,731 8,753 13,262 14,102 2.39% 3.32% 3.70% loans C&I and commercial 6,652,754 6,698,689 6,110,754 67,404 70,610 64,145 4.11% 4.18% 4.26% mortgage loans Finance leases 313,899 324,591 360,276 6,343 6,609 7,582 8.20% 8.08% 8.53% Consumer loans 1,565,404 1,601,999 1,725,350 44,820 46,053 48,594 11.61% 11.41% 11.42% Total loans (4) 13,569,467 13,777,928 13,238,540 180,919 190,734 188,472 5.41% 5.49% 5.77% (5) Total $ $ $ $ $ interest-earning 19,096,056 19,283,455 18,830,013 231,644 252,996 271,996 4.92% 5.21% 5.86% assets Interest-bearing liabilities: Brokered CDs $ $ $ $ $ 47,081 $ 2.42% 2.52% 3.96% 7,452,195 7,398,276 7,461,148 44,382 72,833 Other interest-bearing 4,678,391 4,172,437 4,027,725 21,583 20,471 25,192 1.87% 1.95% 2.54% deposits Loans payable 804,444 849,853 297,556 2,177 908 346 1.10% 0.42% 0.47% Other borrowed 3,004,155 3,588,300 3,651,695 27,300 29,227 32,922 3.69% 3.23% 3.66% funds FHLB advances 971,596 1,103,690 1,246,373 7,694 8,218 8,292 3.21% 2.95% 2.70% Total $ $ $ $ $ $ interest-bearing 16,910,781 17,112,556 16,684,497 103,136 105,905 139,585 2.47% 2.46% 3.39% liabilities (6) Net interest $ $ $ income 128,508 147,091 132,411 Interest rate 2.45% 2.75% 2.47% spread Net interest 2.73% 3.03% 2.85% margin 1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less Puerto Rico statutory tax rate as adjusted for changes to enacted tax rates (40.95% for the Corporation's subsidiaries other than IBEs and 35.95% for the Corporation's IBEs) and adding to it the cost of interest-bearing liabilities. When adjusted to a tax-equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments and unrealized gains or losses on liabilities measured at fair value are excluded from interest income and interest expense because the changes in valuation do not affect interest paid or received. 2- Government obligations include debt issued by government sponsored agencies. 3- Unrealized gains and losses in available-for-sale securities are excluded from the average volumes. 4- Average loan balances include the average of non-performing loans. 5- Interest income on loans includes $3.1 million, $2.8 million and $2.8 million for the first quarter of 2010, fourth quarter of 2009 and first quarter of 2009, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio. 6- Unrealized gains and losses on liabilities measured at fair value are excluded from the average volumes.
Table 3 - Non-Interest Income Quarter Ended March 31, December 31, March 31, (In thousands) 2010 2009 2009 Other service charges on loans $ 1,756 $ 1,982 $ 1,529 Service charges on deposit accounts 3,468 3,357 3,165 Mortgage banking activities 2,500 2,426 806 Rental income - 100 449 Insurance income 2,275 1,753 2,370 Other operating income 4,563 4,802 4,284 Non-interest income before net gain on 14,562 14,420 12,603 investments Gain on VISA shares 10,668 - - Net gain on sale of investments 20,696 24,387 17,838 OTTI on equity securities (600 ) - (388 ) OTTI on debt securities - - - Net gain on investments 30,764 24,387 17,450 $ 45,326 $ 38,807 $ 30,053
Table 4 - Non-Interest Expenses Quarter Ended March 31, December 31, March 31, (In thousands) 2010 2009 2009 Employees' compensation and benefits $ 31,728 $ 29,617 $ 34,242 Occupancy and equipment 14,851 14,822 14,774 Deposit insurance premium 16,653 13,923 4,880 Other taxes, insurance and supervisory fees 5,686 5,127 5,793 Professional fees - recurring 4,529 3,628 2,823 Professional fees - non-recurring 758 1,255 363 Servicing and processing fees 2,008 2,832 2,312 Business promotion 2,205 4,327 3,116 Communications 2,114 2,055 2,127 Net loss on REO operations 3,693 4,847 5,375 Other 7,137 6,375 8,723 Total $ 91,362 $ 88,808 $ 84,528
Table 5 - Selected Balance Sheet Data (In thousands) As of March 31, December 31, March 31, 2010 2009 2009 Balance Sheet Data: Loans and loans held for sale $ 13,293,494 $ 13,949,226 $ 13,533,087 Allowance for loan and lease losses 575,303 528,120 302,531 Money market and investment 4,760,247 4,866,617 5,506,997 securities Intangible assets 44,032 44,698 47,371 Deferred tax asset, net 104,457 109,197 140,851 Total assets 18,850,964 19,628,448 19,709,150 Deposits 12,878,234 12,669,047 11,619,348 Borrowings 4,320,712 5,214,147 5,903,751 Total preferred equity 929,660 928,508 925,162 Total common equity 535,935 644,062 969,327 Accumulated other comprehensive 22,948 26,493 82,751 income, net of tax Total equity 1,488,543 1,599,063 1,977,240
Table 6 - Loan Portfolio Composition of the loan portfolio including loans held for sale at period end. (In thousands) As of March 31, December 31, March 31, 2010 2009 2009 Residential mortgage loans $ 3,598,569 $ 3,616,283 $ 3,498,196 Commercial loans: Construction loans 1,457,027 1,492,589 1,561,813 Commercial mortgage loans 1,547,707 1,590,821 1,519,267 Commercial and Industrial loans (1) 4,523,178 5,029,907 4,346,552 Loans to local financial institutions collateralized by real estate 314,628 321,522 556,859 mortgages Commercial loans 7,842,540 8,434,839 7,984,491 Finance leases 309,275 318,504 352,247 Consumer loans 1,543,110 1,579,600 1,698,153 Total loans $ 13,293,494 $ 13,949,226 $ 13,533,087 1 - As of March 31, 2010, includes $1.2 billion of commercial loans that are secured by real estate but are not dependent upon the real estate for repayment.
Table 7 - Loan Portfolio by Geography (In thousands) As of March 31, 2010 Puerto Rico Virgin Islands Florida Consolidated Residential mortgage $ 2,791,978 $ 446,194 $ 360,397 $ 3,598,569 loans Commercial loans: Construction loans (1) 981,598 197,781 277,648 1,457,027 Commercial mortgage 982,321 72,245 493,141 1,547,707 loans Commercial and 4,221,836 270,670 30,672 4,523,178 Industrial loans Loans to a local financial institution 314,628 - - 314,628 collateralized by real estate mortgages Commercial loans 6,500,383 540,696 801,461 7,842,540 Finance leases 309,275 - - 309,275 Consumer loans 1,420,279 89,784 33,047 1,543,110 Total loans $ 11,021,915 $ 1,076,674 $ 1,194,905 $ 13,293,494 1 - Construction loans of Florida operations include approximately $70.3 million of condo-conversion loans.
Table 8 - Consolidated Non-Performing Assets (Dollars in thousands) March 31, December 31, March 31, 2010 2009 2009 Non-performing loans: Residential mortgage $ 446,676 441,642 315,385 Commercial mortgage 230,468 196,535 120,491 Commercial and Industrial 228,113 241,316 76,747 Construction 685,415 634,329 155,494 Finance leases 4,735 5,207 5,599 Consumer 43,937 44,834 38,295 Total non-performing loans 1,639,344 1,563,863 712,011 REO 73,444 69,304 49,434 Other repossessed property 12,464 12,898 12,088 Investment securities (1) 64,543 64,543 - Total non-performing assets $ 1,789,795 $ 1,710,608 $ 773,533 Past due loans 90 days and still $ 189,647 $ 165,936 $ 208,339 accruing Allowance for loan and lease losses $ 575,303 $ 528,120 $ 302,531 Allowance to total non-performing 35.09 % 33.77 % 42.49 % loans Allowance to total non-performing loans, excluding residential real 48.24 % 47.06 % 76.28 % estate loans (1) Collateral pledged with Lehman Brothers Special Financing, Inc.
Table 9 - Non-Performing Assets by Geography (Dollars in thousands) March 31, December 31, March 31, 2010 2009 2009 Puerto Rico: Non-performing loans: Residential mortgage $ 386,517 $ 376,018 $ 269,311 Commercial mortgage 148,173 128,001 76,380 Commercial and Industrial 219,196 229,039 72,101 Construction 455,919 385,259 114,029 Finance leases 4,735 5,207 5,599 Consumer 40,504 40,132 34,905 Total non-performing loans 1,255,044 1,163,656 572,325 REO 50,470 49,337 33,144 Other repossessed property 11,921 12,634 11,553 Investment securities 64,543 64,543 - Total non-performing assets $ 1,381,978 $ 1,290,170 $ 617,022 Past due loans 90 days and still accruing $ 180,399 $ 128,016 $ 135,905 Virgin Islands: Non-performing loans: Residential mortgage $ 10,726 $ 9,063 $ 8,429 Commercial mortgage 11,726 11,727 753 Commercial and Industrial 4,650 8,300 2,185 Construction 2,886 2,796 2,353 Consumer 1,706 3,540 2,799 Total non-performing loans 31,694 35,426 16,519 REO 470 470 662 Other repossessed property 330 221 411 Total non-performing assets $ 32,494 $ 36,117 $ 17,592 Past due loans 90 days and still accruing $ 8,689 $ 23,876 $ 1,184 Florida: Non-performing loans: Residential mortgage $ 49,433 $ 56,561 $ 37,645 Commercial mortgage 70,569 56,807 43,358 Commercial and Industrial 4,267 3,977 2,461 Construction 226,610 246,274 39,112 Consumer 1,727 1,162 591 Total non-performing loans 352,606 364,781 123,167 REO 22,504 19,497 15,628 Other repossessed property 213 43 124 Total non-performing assets $ 375,323 $ 384,321 $ 138,919 Past due loans 90 days and still accruing $ 559 $ 14,044 $ 71,250
Table 10 - Net Charge-Offs Year ended to Average Loans March 31, December 31, December December 31, December 31, 31, 2010 2009 2008 2007 2006 Residential 1.50 % 0.82 % 0.19 % 0.03 % 0.04 % mortgage Commercial 4.85 % 1.64 % 0.27 % 0.10 % 0.00 % mortgage Commercial and 1.88 % 0.72 % 0.59 % 0.26 % 0.06 % Industrial Construction 14.35 % 11.54 % 0.52 % 0.26 % 0.00 % Consumer and finance 3.01 % 3.05 % 3.19 % 3.48 % 2.90 % leases Total loans 3.65 % 2.48 % 0.87 % 0.79 % 0.55 %
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Source: First BanCorp