SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported a net income of $9.4 million for the second quarter of 2012, or $0.05 per diluted share, an improvement compared to a net loss of $13.2 million, or $0.06 loss per diluted share, for the first quarter of 2012 and a net loss of $14.9 million, or $1.04 loss per diluted share for the second quarter of 2011. The net loss for the six-month period ended June 30, 2012 was $3.8 million, or $0.02 loss per diluted share, compared to a net loss of $43.3 million, or $2.71 loss per diluted share for the same period in 2011.
2012 Second Quarter Highlights Compared with 2012 First Quarter:
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are very pleased to report our first quarterly profit in over three years. We are encouraged by the improvements achieved which reflect the prudent and proactive strategies that we have employed, and demonstrate the commitment of the management team and the progress in the execution of our plan to return to profitability. This plan includes the expansion of our products mix, improvement on net interest margin, reduction of our risk profile, and improvements in the quality of earnings and operating metrics.
"Over the past twelve months we have focused on the execution of our strategic plan and have achieved significant milestones; Pre-tax, pre-provision income up 26% from the same quarter last year, Net Interest Margin at 3.44% is up significantly from 2.64% last year, Non-brokered deposits up 10% from last year, Loan originations (excluding the credit card transaction) up from a year ago, Non-performing Assets down 6% from a year ago, and Net charge offs down 35% from the same quarter a year ago.
"Our improved performance this quarter reflects lower estimated credit losses on the commercial and construction loan portfolios and our focus on more profitable and diversified banking activities. Improvements in the funding mix through growth in lower cost deposits and deposit pricing strategies continued to impact net interest income and margin favorably. Our strategies to increase non-brokered deposits were successful, as these grew by $147.7 million during the second quarter. Increased loan origination activity also added to our revenues growth opportunities. The acquisition of the $406 million credit card portfolio of approximately 140,000 active First Bank branded credit card accounts was a significant contributor to our improvement in net interest income, non-interest income and efficiency ratios, and provides additional cross sell opportunities for our continued organic core deposit growth.
"Many of our credit quality performance metrics remain stable; nevertheless, non-performing asset levels remain elevated and continue to be a challenge in the current economic environment. Improving asset quality continues to be our first priority.”
Mr. Alemán stated further: “Our capital levels continue to be strong and we will continue to execute our strategic plan, as we did during the first half of the year, by making selective investments in initiatives to achieve consistent, profitable growth in quarters and years to come. We will remain disciplined in our pricing of loans and deposits, and will stay focused on increasing customer cross-sell and work to improve our credit quality, risk profile and operating efficiency. Disciplined management of capital in order to generate an appropriate return to our stockholders is our priority.”
The following table provides details with respect to the calculation of the earnings (loss) per common share for the quarters ended June 30, 2012, March 31, 2012 and June 30, 2011 and for the six-month periods ended June 30, 2012 and June 30, 2011:
This press release includes certain non-GAAP financial measures and should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.
Adjusted Pre-Tax, Pre-Provision Income Trends
One metric that Management believes is useful in analyzing performance is the level of earnings adjusted to exclude tax expense, the provision for loan and lease losses, securities gains or losses, fair value adjustments on derivatives and liabilities measured at fair value and equity in earnings or losses of unconsolidated entities. In addition, from time to time, earnings are adjusted for items judged by management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that management believes that a complete analysis of its Corporation’s performance requires consideration also of results that exclude such amounts (see “Adjusted Pre-Tax, Pre-Provision Income” in “Basis of Presentation” for a full discussion.)
The following table shows adjusted pre-tax, pre-provision income of $37.9 million in the 2012 second quarter, up from $34.8 million in the prior quarter:
As discussed in the sections that follow, the increase in pre-tax, pre-provision income from the 2012 first quarter primarily reflected: (i) an increase of $6.6 million in net interest income, excluding fair value adjustments of $0.5 million, and (ii) interchange income and other related fees of $1.0 million earned on the recently acquired credit card portfolio from FIA Card Services (FIA). Partially offsetting these increases was a $4.2 million increase in non-interest expenses, excluding a tax-credit contingency adjustment of $2.5 million recorded in the first quarter, led by higher losses on REO operations and credit card processing expenses. This increase reflects higher write-downs to the value of REO properties, increased operational costs attributable to a larger inventory and the impact in the previous quarter of a $1.3 million gain realized on the sale of certain REO commercial properties. Higher marketing expenses and accrued costs related to the administration of the credit card portfolio and related rewards program also contributed to the increase in non-interest expenses. As economic conditions improve and management continues to focus on the execution of its strategic plan, we should start to see a consistent positive trend in pre-tax, pre-provision income. We see opportunities in the second half of 2012 for expansion of net interest margin, through the growth of our consumer portfolio and proper management of deposit growth.
Net Interest Income
Net interest income, excluding fair value adjustments on derivatives and financial liabilities measured at fair value (“valuations”), and net interest income on a tax-equivalent basis are non-GAAP measures. (See “Basis of Presentation – Net Interest Income” below for additional information.) The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on a tax-equivalent basis. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations and on a tax-equivalent basis.
Unrealized loss (gain) on derivative instruments
Unrealized gain (loss) on derivative instruments and liabilities measured at fair value
Net interest income, excluding valuations, increased $6.6 million when compared to the first quarter of 2012 driven by the purchase in late May of approximately $406 million of consumer credit cards and further reductions in the overall cost of funding. The acquisition of the credit card portfolio from FIA increased the average balance of consumer loans by approximately $125.7 million and contributed $6.2 million to interest income, including $0.7 million related to the discount accretion recorded as an adjustment to the yield of the purchased portfolio. As this purchase was the main driver for the 12 basis points increase in the yield on total earning assets, the improvement in net interest margin of 24 basis points to 3.44% was also derived from a reduction in the overall cost of funding, achieved through lower deposit pricing and the maturity and prepayment of some high-cost borrowings. Low market interest rates, diligence in managing deposit pricing and an improved deposit mix resulted in the second quarter cost of interest-bearing deposits declining 13 basis points in comparison to the previous quarter. The average rate paid on non-brokered deposits, including interest-bearing checking accounts, savings and retail certificates of deposit (CDs), declined by 12 basis points to 1.13% during the second quarter of 2012 while the average volume increased by $114.0 million. The Corporation continued with its planned reduction of brokered CDs, which decreased by $163.1 million in average balances. These factors combined with the maturity of a $100 million repurchase agreement that carried a cost of 4.38%, the maturity of a $40 million public fund CD that carried a cost of 4.66% and the prepayment of a $15.4 million medium-term note that carried a cost of 6%, resulted in a 15 basis points reduction in the overall cost of funding. Further reductions in interest expense and the average cost of funds could be realized during 2012, as maturing brokered CDs and advances are renewed at lower current rates.
The benefit derived from the lower cost of funds and the credit card portfolio was partially offset by: (i) the reduction in the average balance of commercial loans due to significant loans paid-off and repayments and (ii) lower yields on investment securities attributed to calls of $92 million of Puerto Rico government obligations with an average yield of 5.22% not reinvested and maintained in low-yielding cash balances. In addition the decrease in interest income from residential mortgages was driven by the partial reversal of $0.5 million of interest receivable on delinquent residential mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).
Provision for Loan and Lease Losses
The provision for loan and lease losses for the second quarter of 2012 was $24.9 million, down $11.3 million from the first quarter 2012 provision. The decline in the provision reflected primarily a lower provision for commercial and industrial (“C&I”) and construction loans due to reduced charges to the specific reserve of certain collateral dependent loans, the overall decrease in the size of these portfolios and the improvement in the cumulative charge-off history used for the general reserve determination. The current quarter’s provision for loan and lease losses was $26.8 million less than total net charge-offs, as approximately 67% of charge-offs for commercial and construction loans were against previously established specific reserves and did not require additional provisions (see “Credit Quality” section below for a full discussion.)
Non-interest income increased $5.5 million from the 2012 first quarter primarily due to:
These variances were partially offset by a $0.4 million decrease in revenues from mortgage banking activities driven by a $0.4 million adjustment to the carrying value of servicing assets related to repurchased delinquent FHA/VA insured loans and higher temporary impairments of servicing assets. Nevertheless revenues from sales and securitizations of mortgage loans increased by $0.3 million.
Non-interest expenses increased $1.7 million to $86.9 million in the second quarter of 2012 compared to the first quarter of 2012, substantially related to:
Partially offset by:
Income Taxes
The income tax expense for the second quarter of 2012 amounted to $1.5 million compared to an income tax expense of $2.1 million for the first quarter of 2012, a variance driven by lower taxable income of profitable subsidiaries. As of June 30, 2012, the deferred tax asset, net of a valuation allowance of $366.9 million, amounted to $4.7 million compared to $4.9 million as of March 31, 2012. The Corporation continued to increase the valuation allowance related to deferred tax assets created in connection with the operations of its banking subsidiary FirstBank. Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns; thus, losses of one entity cannot offset income of another entity.
CREDIT QUALITY
Non-performing assets, excluding non-performing loans held for sale, to total assets, excluding non-performing loans held for sale
(2)Amount excludes purchased credit impaired loans with a fair value of approximately $15.1 million acquired as part of the credit card portfolio acquired from FIA.
Credit quality continued to improve at a slow but steady pace in the second quarter of 2012. Total non-performing loans decreased by $53.7 million led by foreclosures, charge-offs and a decrease in the inflows of non-performing loans. Total non-performing assets, which include repossessed assets, decreased by $24.2 million, or 2%. New non-performing loans inflows of $102.5 million, decreased by $18.5 million, or 15%, compared to inflows of $121.0 million in the prior quarter. Total delinquencies, which include all loans 30 days or more past due and non-accrual loans decreased by $62.6 million and the level of adversely classified commercial and construction loans decreased by $109.3 million, or 9% compared to the prior quarter. The initial fair value of purchased credit-impaired (PCI) loans includes an estimate of credit losses expected to be realized over the remaining lives, therefore, PCI loans with a fair value of approximately $15.1 million acquired as part of the credit card portfolio acquired from FIA are excluded from delinquency and non-performing loan statistics. The net charge-off activity showed an increase of $5.5 million mainly reflecting a higher inventory of residential real estate properties subject to updated appraisals.
Non-Performing Loans and Non-Performing Assets
Total non-performing loans were $1.07 billion at June 30, 2012, which represented 10.35% of total loans held for investment. This represents a decrease of $53.7 million, or 5%, from $1.12 billion, or 10.87% of total loans held for investment at March 31, 2012.
Non-performing construction loans decreased by $28.9 million, or 13%, from the end of the first quarter of 2012, mainly due to the transfer to REO of properties acquired in foreclosure aggregating $19.1 million. Construction loans net charge-offs of $15.2 million in the second quarter also contributed to the decrease in non-performing construction loans. The inflows of non-performing construction loans decreased by $1.96 million from $10.7 million for the first quarter of 2012 to $8.8 million in the second quarter of 2012.
Non-performing C&I loans decreased by $8.4 million, or 3%, on a sequential quarter basis, reflecting primarily foreclosures of approximately $11.1 million, net charge-offs of $8.4 million, borrowers’ payments and payoffs of $5.3 million and loans brought current. The decrease was primarily associated with loans in Puerto Rico. Total inflows of non-performing C&I loans remained stable with a slight increase of $0.7 million from $19.9 million for the first quarter of 2012 to $20.6 million for the second quarter of 2012.
Non-performing residential mortgage loans decreased by $8.1 million, or 2%, from March 31, 2012. The decrease includes approximately $20.8 million of loans with cured delinquencies and also reflects reductions due to foreclosures of $14.6 million and the restoration to accrual status of modified loans that successfully completed a trial performance period aggregating to approximately $10 million. Borrowers’ payments, payoffs and charge-offs also contributed to the decrease. The decrease was primarily concentrated in Puerto Rico. The level of inflows of non-performing residential mortgage loans decreased by 18% from $57.3 million for the first quarter of 2012 to $46.9 million in the second quarter. Approximately $219.6 million, or 66% of total non-performing residential mortgage loans, have been written down to their net realizable value.
Non-performing commercial mortgage loans decreased by $4.5 million, or 2%, from the end of the first quarter of 2012, primarily reflecting both net charge-off activity of $6.3 million and foreclosures of $6.6 million. Most of the decrease was in the United States and the Virgin Islands. Total inflows of non-performing commercial mortgage loans declined 30% from $18.7 million for the first quarter of 2012 to $13.9 million for the second quarter of 2012.
The levels of non-performing consumer loans, including finance leases, showed a $3.8 million decrease during the second quarter of 2012. The decrease was mainly related to a reduction in the boat financing category reflecting both repossessions and borrowers’ payments. The inflows of non-performing consumer loans declined 9% from $14.3 million for the first quarter of 2012 to $13.0 million for the second quarter of 2012.
As of June 30, 2012, approximately $281.8 million, or 26%, of total non-performing loans held for investment have been charged-off to their net realizable value. (See Allowance for Loan and Lease Losses discussion below for additional information.)
The REO portfolio, which is part of non-performing assets, increased by $31.4 million to $167.3 million, including in-substance foreclosures of two construction projects in Puerto Rico amounting to $16.0 million. We expect to see continued movement of credits in and out of REO as we progress in our loan resolution strategies.
The following table shows the activity during the second quarter of 2012 of the REO portfolio by geographic region and type of property:
The over 90-day delinquent, but still accruing loans, excluding loans guaranteed by the U.S. Government, decreased during the second quarter of 2012 by $12.1 million to $37.1 million, or 0.36% of total loans held for investment, at June 30, 2012. Loans 30 to 89 days delinquent increased by $3.8 million, to $277.6 million as of June 30, 2012.
The following table sets forth an analysis of the allowance for loan and lease losses during the periods indicated:
The provision for loan and lease losses of $24.9 million in the second quarter of 2012 was $11.3 million lower than the provision recorded in the first quarter of 2012. The decrease in the provision was principally related to the C&I and construction loan portfolios, reflecting lower charges to specific reserves for collateral dependent loans, the overall reduction in the size of these portfolios and improved charge-off trends. These variances were partially offset by increases in the provision for residential and consumer loans. It is important to note that, despite the total decrease of $26.8 million in the allowance for loan losses, the reserve coverage for non-performing loans has not changed significantly. The allowance for loan losses to total non-performing loans ratio was 42.90% as of June 30, 2012 compared to 43.23% for the prior quarter.
In Puerto Rico, the Corporation recorded a provision for loan and lease losses of $27.0 million, a decrease of $8.2 million compared to the first quarter of 2012. The decrease was mainly related to reductions of $16.0 million in the provision for C&I loans and $2.3 million in the provision for construction loans due to lower charges to specific reserves for certain collateral dependent loans, the reduction in the size of these portfolios and the improvement in the cumulative charge-off history used for the general reserve determination. Partially offsetting these decreases was an $11.2 million increase in the provision for residential mortgage loans, reflecting higher charge-offs and expected increases in loss severities as the Corporation continues with its strategy to accelerate the disposition of REO properties, and an increase of $0.9 million in the provision for consumer loans mainly related to the increase in the size of the portfolio.
The Corporation recorded a reserve release of $0.5 million in the United States for the second quarter of 2012, compared to a release of $4.8 million for the first quarter of 2012. The decrease was mainly attributable to the release in the previous quarter of a $3.3 million reserve related to a $5.3 million non-performing loan paid-off during the first quarter.
With respect to the Virgin Islands portfolio, the Corporation recorded a reserve release of $1.6 million for the second quarter of 2012 compared to a provision of $5.8 million for the first quarter of 2012. The decrease was driven by lower charges to specific reserves for certain commercial construction projects.
The following table sets forth information concerning the ratio of the allowance to non-performing loans held for investment as of June 30, 2012 and March 31, 2012 by loan category:
The following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of June 30, 2012 and March 31, 2012 by loan category and by whether the allowance and related provisions were calculated individually for impairment purposes or through a general valuation allowance.
Net Charge-Offs
Total net charge-offs for the second quarter of 2012 were $51.7 million, or 2.03% of average loans on an annualized basis, up from $46.2 million, or an annualized 1.78%, for the first quarter of 2012. Approximately 67% of construction and commercial charge-offs recorded in the second quarter were against previously established specific reserves.
Residential mortgage loans net charge-offs in the second quarter of 2012 were $14.2 million, or an annualized 2.04% of related average loans, up from $5.7 million, or an annualized 0.82%, in the prior quarter, mainly reflecting a higher inventory of residential real estate properties subject to updated appraisals.
Commercial mortgage loans net charge-offs in the second quarter of 2012 were $6.3 million, or an annualized 1.68% of related average loans, up from $3.6 million, or an annualized 0.92% of related loans, in the first quarter of 2012. Commercial mortgage loans net charge-offs in the second quarter of 2012 were almost equally spread between Puerto Rico and the United States, mainly related to foreclosures and include three relationships with individual charge-offs in excess of $1 million.
C&I loans net charge-offs in the second quarter of 2012 were $8.4 million, or an annualized 0.88% of related average loans, down from $12.7 million, or an annualized 1.25% of related loans, in the first quarter of 2012. Substantially all of the charge-offs recorded in the second quarter were in Puerto Rico spread through several industries, including $3.6 million on two relationships with individual charge-offs in excess of $1 million, both with previously established adequate reserves.
Construction loans net charge-offs in the second quarter of 2012 were $15.2 million, or an annualized 15.21% of related average loans, down from $15.4 million, or an annualized 14.23% of related loans, in the first quarter of 2012. Construction loans net charge-offs include a $12.8 million charge-off on one project in the Virgin Islands with a previously established adequate reserve.
Net charge-offs on consumer loans and finance leases in the second quarter of 2012 were $7.6 million, or an annualized 1.81% of related average loans, compared to $8.8 million, or an annualized 2.26% of average loans in the first quarter of 2012. This decrease reflected the continued high credit quality of originations and an improved ratio also impacted by a larger portfolio led by the newly acquired credit cards portfolio.
The following table presents annualized net charge-offs to average loans held-in-portfolio:
The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.
The following table presents annualized net charge-offs to average loans by geographic segment:
(3)
(4)
(1)
(2)
For the second quarter of 2012, recoveries in commercial and industrial loans in Florida exceeded charge-offs.
For the second and first quarter of 2012, recoveries in construction loans in Florida exceeded charge-offs.
For the second quarter of 2011, recoveries in residential mortgage loans in the Virgin Islands exceeded charge-offs.
For the second quarter of 2011, recoveries in commercial and industrial loans in the Virgin Islands exceeded charge-offs.
Balance Sheet
Total assets were approximately $12.9 billion as of June 30, 2012, down $172.0 million from March 31, 2012. Proceeds from loan and, MBS repayments and calls of investment securities were used, in part, to repay high cost borrowings. Total investment securities decreased by $307.8 million mainly due to maturities of $300 million of U.S. agency debt securities and calls of $92 million of Puerto Rico Government Obligations. A portion of the proceeds from calls and maturities of investment securities had not been reinvested at the end of the second quarter and was maintained as excess liquidity. The balance of cash and cash equivalents increased by $140.7 million. Total loans, net of the allowance for loan and lease losses, increased by $43.2 million, led by the aforementioned purchase of a $406 million credit card portfolio and an increase in the volume of loan originations , which was partially offset by significant repayments of commercial loans, charge-offs and foreclosures. The Corporation reduced its portfolio of loans granted to government entities by approximately $216 million during the second quarter. The credit card portfolio acquired during the second quarter of 2012 was recorded at an initial fair value of approximately $369 million, and the Corporation recognized a purchased credit card relationship intangible asset of $24.4 million.
The Corporation is experiencing continued loan demand and has continued with its targeted origination strategy. During the second quarter of 2012, total loan originations, including refinancings and draws from existing commitments, amounted to approximately $837.7 million, up from $569.3 million in loan originations in the previous quarter, reflecting increases in residential mortgage, consumer and C&I loan originations. Originations and purchases of residential mortgage loans amounted to $193.6 million in the second quarter, an increase of $31.7 million, or 20%, compared to the first quarter of 2012. Originations of auto loans (including finance leases) amounted to $146.0 million for the second quarter of 2012 compared to $116.8 million for the first quarter of 2012 and other personal loan originations amounted to $91.0 million, an increase of $47.5 million compared to the prior quarter driven by credit cards utilization activity of approximately $34 million. C&I loan originations amounted to $380.9 million, an increase of $151.2 million compared to the prior quarter.
As of June 30, 2012, liabilities totaled $11.5 billion, a decrease of approximately $187.9 million from March 31, 2012. The decline in total liabilities is mainly attributable to a decrease of $155.8 million in brokered CDs. Approximately $577.5 million of brokered CDs with an average cost of 1.93% matured during the second quarter. Approximately $433.4 million of the matured brokered CDs were renewed at an average cost of 0.96%. In addition, the Corporation repaid $20 million of maturing Federal Home Loan Bank advances and $100 million of a matured repurchase agreement and prepaid a $15.4 million medium-term note. The Corporation continued to grow its core deposit base and reduce its reliance on brokered CDs. Core savings accounts (including money market accounts) reflected an increase of $30.5 million, retail CDs increased by $16.6 million and commercial and individual demand deposits increased by $14.1 million since the end of the previous quarter.
The Corporation’s total stockholders’ equity amounted to $1.45 billion as of June 30, 2012, an increase of $15.9 million from March 31, 2012, driven by internal capital generation including net income of $9.4 million and an increase of $6.4 million in other comprehensive income due to higher unrealized gains on available for sale securities.
The Corporation’s total capital, Tier 1 capital, and leverage ratios as of June 30, 2012 of 17.30%, 15.98% and 12.51%, respectively, were down from total capital and Tier 1 capital of 17.36% and 16.04%, respectively, and up from leverage of 12.31% at the end of the prior quarter. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of June 30, 2012 of its banking subsidiary, FirstBank Puerto Rico, of 16.80%, 15.48% and 12.13%, respectively, were down from total capital and Tier 1 capital of 16.83% and 15.50%, respectively, and up from leverage of 11.91% at the end of the prior quarter. The decrease in total and Tier 1 capital ratios was driven by an increase in risk-weighted assets mainly associated with the acquisition of the credit card portfolio that carried a 100% risk weighting, while most of the commercial loans with government entities that were repaid carried a lower risk-weighting. This was offset, in part, by the internal generation of capital in the second quarter. The increase in the leverage ratio was due to the decrease in average total assets. All of the regulatory capital ratios for the Bank are well above the minimum required under the Consent Order entered into with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. Given the Consent Order, however, the Bank cannot be considered to be a well-capitalized institution.
Tangible Common Equity
The Corporation’s tangible common equity ratio increased to 10.29% as of June 30, 2012 from 10.20% as of March 31, 2012 and the Tier 1 common equity to risk-weighted assets ratio as of June 30, 2012 decreased to 13.12% from 13.14% as of March 31, 2012.
The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets over the last five quarters to the comparable GAAP items:
(In thousands, except ratios and per share information)
The following table reconciles stockholders’ equity (GAAP) to Tier 1 common equity:
2- Approximately $12 million of the Corporation's deferred tax assets at June 30, 2012 (March 31, 2012 - $12 million; December 31, 2011 - $13 million; September 30, 2011 - $12 million; June 30, 2011 - $11 million) was included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $41k of such assets at June 30, 2012 (March 31, 2012 - $25k; December 31, 2011 - $0; September 30, 2011 - $0.3 million; June 30, 2011 - $0.3 million) exceeded the limitation imposed by these guidelines and, as "disallowed deferred tax assets," was 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 $7 million of the Corporation's other net deferred tax liability at June 30, 2012 (March 31, 2012 - $7 million; December 31, 2011 - $8 million; September 30, 2011 - $7 million; June 30, 2011 - $5 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.
Conference Call / Webcast Information
First BanCorp’s senior management will host an earnings conference call and live webcast on Thursday, August 2, 2012, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s website: www.firstbankpr.com or through a dial-in telephone number at (877) 317-6789 or (412) 317–6789. Listeners are recommended to go to the website at least 15 minutes prior to the call to download and install any necessary software. A replay of the webcast will be archived in the investor relations section of First BanCorp’s website, www.firstbankpr.com, until August 2, 2013. A telephone replay will be available one hour after the end of the conference call through 9:00 a.m. Eastern timeSeptember 3, 2012 at (877) 344-7529 or (412) 317-0088. The conference number is 10016191.
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, the following could cause actual results to differ materially from those expressed in, or implied by such forward-looking statements: uncertainty about whether the Corporation and FirstBank will be able to fully comply with the written agreement dated June 3, 2010 that the Corporation entered into with the Federal Reserve Bank of New York (“FED”) and the order dated June 2, 2010 that FirstBank entered into with the FDIC and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico that, among other things, require FirstBank to maintain certain capital levels and reduce its special mention, classified, delinquent and non-performing assets; the risk of being subject to possible additional regulatory actions; uncertainty as to the availability of certain funding sources, such as retail brokered CDs; the Corporation’s reliance on brokered CDs and its ability to obtain, on a periodic basis, approval from the FDIC to issue brokered CDs to fund operations and provide liquidity in accordance with the terms of the FDIC Order; the risk of not being able to fulfill the Corporation’s cash obligations or resume paying dividends to the Corporation’s stockholders in the future due to the Corporation’s inability to receive approval from the FED to receive dividends from FirstBank or FirstBank’s failure to generate sufficient cash flow to make a dividend payment to the Corporation; the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and their potential 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 high levels of non-performing assets, charge-offs and the provision expense and may subject the Corporation to further risk from loan defaults and foreclosures; adverse changes in general economic conditions in the U.S. and in Puerto Rico, including the interest rate environment, market liquidity, housing absorption rates, real estate prices and disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources, affect demand for all of the Corporation’s products and services and reduce the Corporation’s revenues, earnings and the value of the Corporation’s assets; 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 in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S. and the U.S. and British Virgin Islands, which could affect the Corporation’s financial condition or 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 U.S. economy and stabilize the U.S. 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, the FDIC, government-sponsored housing agencies and regulators in Puerto Rico and the U.S. and British Virgin Islands; the risk of possible failure or circumvention of controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; 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 the Corporation’s non-interest expense; risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.; the impact on the Corporation’s results of operations and financial condition associated with acquisitions and dispositions; a need to recognize additional impairments on financial instruments or goodwill relating to acquisitions; risks that downgrades in the credit ratings of the Corporation’s long-term senior debt will adversely affect the Corporation’s ability to access necessary external funds; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Corporation’s businesses, business practices and cost of operations; and general competitive factors and industry consolidation. 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 except as required by the federal securities laws.
Basis of Presentation
Use of Non-GAAP Financial Measures
This press release contains 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 to this earnings release.
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 the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles and purchased credit card relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles and purchased credit card relationship intangible. 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 method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets, or the 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 will be required under Basel III capital standards as proposed. 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.
Adjusted Pre-Tax, Pre-Provision Income
One non-GAAP performance metric that management believes is useful in analyzing underlying performance trends, particularly in times of economic stress, is adjusted pre-tax, pre-provision income. Adjusted pre-tax, pre-provision income, as defined by management, represents net (loss) income excluding income tax expense (benefit), the provision for loan and lease losses, gains on sale and OTTI of investment securities, fair value adjustments on derivatives and liabilities measured at fair value, equity in earnings or losses of unconsolidated entities as well as certain items identified as unusual, non-recurring or non-operating.
From time to time, revenue and expenses are impacted by items judged by management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that management believes that a complete analysis of its Corporation’s performance requires consideration also of results that exclude such amounts. These items result from factors originating outside the Corporation such as regulatory actions/assessments, and may result from unusual management decisions, such as the early extinguishment of debt.
Net Interest Income, Excluding Valuations and on a Tax-Equivalent Basis
Net interest income, interest rate spread and net interest margin are reported excluding the changes in the fair value of derivative instruments and financial liabilities elected to be measured at fair value on a tax equivalent basis. 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.
Loans, net of allowance for loan and lease losses of $457,153 (March 31, 2012 - $483,943 ; December 31, 2011 - $493,917)
Preferred Stock, authorized 50,000,000 shares: issued 22,828,174 shares; outstanding 2,521,872; aggregate liquidation value $63,047
Common stock, $0.10 par value, authorized 2,000,000,000 shares; issued 206,629,311 (March 31, 2012 - 206,629,311 shares issued ; December 31, 2011 - 205,794,024 shares issued)
Common stock outstanding, 206,134,458 shares outstanding (March 31, 2012 - 206,134,458 shares outstanding ; December 31, 2011 - 205,134,171 shares outstanding)
Total liabilities and stockholders' equity
Equity in losses of unconsolidated entities
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 operate within U.S. banking laws and regulations. The Corporation operates a total of 153 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; 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 Express, a small loan company. First BanCorp’s common shares trade on the New York Stock Exchange under the symbol FBP. Additional information about First BanCorp. may be found at www.firstbankpr.com.
EXHIBIT A
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 and Excluding Valuations)
1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate (30% for 2012; 30% for the Corporation's subsidiaries other than International Banking Entities (IBEs) and 25% for the Corporation's IBEs in 2011) 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.
5- Interest income on loans includes $2.9 million, $2.4 million and $2.5 million for the quarters ended June 30, 2012, March 31, 2012 and June 30, 2011, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
Table 3 - Year to Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax Equivalent Basis and Excluding Valuations)
1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate (30% for 2012; 30% for the Corporation's subsidiaries other than IBEs and 25% for the Corporation's IBEs in 2011) 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.
5- Interest income on loans includes $5.3 million and $4.7 million for the six-month periods ended June 30, 2012 and 2011, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
Table 7 - Loan Portfolio
Table 9 - Non-Performing Assets
(1
)
Collateral pledged to Lehman Brothers Special Financing, Inc.
(2
Amount excludes purchased credit impaired loans with a fair value of approximately $15.1 million acquired as part of the credit card portfolio acquired from FIA.
Table 11 - Allowance for Loan and Lease Losses
Table 12 - Net Charge-Offs to Average Loans
Includes net charge-offs totaling $7.8 million associated with non-performing residential mortgage loans sold in a bulk sale.
Includes net charge-offs totaling $29.5 million associated with loans transferred to held for sale. Commercial mortgage net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 3.38%.
Includes net charge-offs totaling $8.6 million associated with loans transferred to held for sale. Commercial and Industrial net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 1.98%.
Includes net charge-offs totaling $127.0 million associated with loans transferred to held for sale. Construction net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 18.93%.
(5)
Includes net charge-offs totaling $165.1 million associated with loans transferred to held for sale. Total net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 3.60%.
First BanCorp.John B. Pelling III, 305-577-6000, Ext. 162Investor Relations Officerjohn.pelling@firstbankpr.com
Source: First BanCorp.