2013 Second Quarter highlights and comparison with First Quarter
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 loss of $122.6 million for the second quarter of 2013, or $0.60 per diluted share, compared to a net loss of $72.6 million, or $0.35 per diluted share, for the first quarter of 2013 and net income of $9.4 million, or $0.05 per diluted share for the second quarter of 2012.
The results for the second quarter of 2013 were negatively impacted by two significant items: (i) a $72.9 million loss on the previously announced bulk sale of non-performing residential mortgage loans and OREO properties, and (ii) a $66.6 million loss related to the previously announced write-off of the collateral pledged to Lehman. Financial results for the first quarter of 2013 were similarly adversely impacted by a loss of $68.0 million related to a bulk sale of adversely classified assets, mainly commercial loans, and valuation adjustments to certain loans transferred to held for sale.
This press release includes certain non-GAAP financial measures, including adjusted net income (loss), adjusted pre-tax, pre-provision income, adjusted net interest income and margin, adjusted non-interest income, adjusted non-interest expenses, certain capital ratios, and certain other financial measures adjusted to exclude the effects of the bulk sales of assets and the valuation adjustments to certain loans transferred to held for sale, and should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “Our initiatives to accelerate improvement of asset quality led to several extraordinary expenses and charges in the second quarter and created significant variability in our financial results. Excluding the write-down of the collateral pledged to Lehman and the bulk sale of non-performing residential loans, our adjusted net income was $16.8 million compared to an adjusted loss of $4.6 million in the first quarter. Furthermore, OREO adjustments and changes to the Puerto Rico tax code created additional variance in our quarterly results. While our market is still facing headwinds, with the Puerto Rico government’s approved budget and steps taken to address fiscal issues, the economic environment should continue to show signs of stabilization.”
“We are very pleased with the progress achieved in the de-risking of our balance sheet, our non-performing assets to total assets ratio is at the lowest level since the peak in 2010. Franchise metrics continue to improve, our net interest margin expanded to over 4 percent, we achieved growth on core deposits and strong loan origination activity at over $900 million during the second quarter. Further asset quality improvements through proactive portfolio management and sales of held for sale loans and OREO continues to be our top priority and our team is keenly focused on opportunities for further earnings generation and optimization of our expense base.”
RECENT SIGNIFICANT EVENTS:
Impairment of Collateral Pledged to Lehman
Late in the day on May 10, 2013, the Corporation received notice from its counsel that the United States Bankruptcy Court for the Southern District of New York denied the Bank’s Motion for Summary Judgment filed in connection with its claim to recover certain assets posted as collateral with Lehman and that the Motion for Summary Judgment submitted by Barclays Capital (“Barclays”) was granted.
This matter relates to the claim that the Bank filed against Barclays to recover the securities (or the cash equivalent thereof) that were posted as collateral in connection with certain interest rate swap agreements executed with Lehman. Beginning with the second quarter of 2009, the Corporation classified the pledged securities as a non-performing asset with a book value of $64.5 million. As a result of the Bankruptcy Court’s May 10, 2013 decision, the Corporation determined that it is probable that the asset is impaired and, in the 2013 second quarter, recorded a non-cash charge of $66.6 million associated with the write-off of the carrying value of the pledged securities and related accrued interest. The Corporation has filed a Notice of Appeal and will continue with its efforts through the legal process to recover the value of the assets.
Bulk Sales of Assets
On June 21, 2013, the Corporation announced that it had completed a sale of non-performing residential mortgage loans with a book value of $203.8 million and, OREO properties with a book value of $19.2 million in a cash transaction. The sales price of this bulk sale was $128.3 million. Approximately $30.1 million of reserves had already been allocated to the loans. This transaction resulted in total charge-offs of $98.0 million and an incremental loss of $69.8 million. In addition, the Corporation recorded $3.1 million of professional service fees specifically related to this bulk sale of non-performing residential assets. This transaction resulted in a total pre-tax loss of $72.9 million.
As previously reported, on March 28, 2013, the Corporation completed the sale of adversely classified loans with a book value of $211.4 million, mainly commercial loans, and OREO properties with a book value of $6.3 million in a cash transaction. This transaction resulted in total charge-offs of $98.5 million and an incremental loss of $58.9 million, reflected in the first quarter of 2013. In addition, the Corporation recorded $3.9 million of professional service fees in the first quarter of 2013 specifically related to this bulk sale of adversely classified commercial assets. This transaction resulted in a total pre-tax loss of $62.8 million.
In addition, during the first quarter of 2013, the Corporation transferred to held for sale non-performing loans with an aggregate book value of $181.6 million. These transfers resulted in charge-offs of $36.0 million and an incremental loss of $5.2 million reflected in the provision for loan and lease losses for the first quarter of 2013.
During the second quarter of 2013, the Corporation completed the sale of a $40.8 million non-performing commercial mortgage loan related to one of the loans transferred to held for sale in the first quarter without incurring additional losses.
In a separate transaction during the second quarter, the Corporation entered into an agreement to receive foreclosed real estate in partial satisfaction of debt related to one of the loans written-off and transferred to held for sale in the first quarter. The remaining balance of such partially satisfied commercial mortgage loan held for sale was restructured, resulting in a lower of cost or market loss of $3.4 million recorded as part of “Other income” in the second quarter of 2013.
The following table shows a reconciliation with respect to the calculation of certain non-GAAP financial measures (“adjusted net charge-offs,” “adjusted provision for loan and lease losses,” “adjusted non-interest income,” “adjusted non-interest expenses,” “adjusted net income (loss),” “adjusted earnings (loss) per common share,”), which reflect the exclusion of the impact of the bulk sales, the transfer of loans to held for sale, and the write-off of the collateral pledged to Lehman, with the corresponding measures calculated and presented in accordance with GAAP.
1 - Charge-off percentages annualized
Changes to the Puerto Rico Internal Revenue Code
On June 30, 2013, the Puerto Rico Government approved Act No. 40 (“Act 40”), which amended the Puerto Rico Internal Revenue Code of 2011 (the “2011 PR Code”), and Act No. 46 (“Act 46”), which brings changes to the sales and use tax regime. The main provisions of Act 40 that impact financial institutions include:
(i)
A new national gross receipts tax that, in the case of financial institutions is 1% of gross income, is not deductible for purposes of computing net taxable income and is not part of the alternative minimum tax (“AMT”). This provision is retroactive to January 1, 2013. As a result, an expense of $3.2 million was recorded in the second quarter of 2013 related to the national gross receipts tax which reflects 6 months of expenses. The impact of the gross national receipts tax corresponding to the first quarter of 2013 amounted to $1.7 million. This expense is included as part of “Taxes, other than income taxes” in the Consolidated Statement of (Loss) Income. Subject to certain limitations, a financial institution will be able to claim 0.5% of its gross income as a credit against its regular income tax or the alternative minimum tax. A $1.6 million benefit related to this credit was recorded as a reduction to the provision for income taxes in the second quarter
A decrease in the surtax deduction available to corporations to compute the additional surtax from $750,000 to $25,000 and a change in the surtax rate to rates that range from 5% to 19%, resulting in an increase in the maximum statutory tax rate from 30% to 39%. This provision is also retroactive to January 1, 2013. The effect on operating results in the second quarter of 2013 related to these changes was a net benefit of approximately $0.5 million, mainly due to the increase in the deferred tax asset of profitable subsidiaries. The deferred tax valuation allowance increased to $523.4 million as of June 30, 2013 from $384.4 million at the end of the previous quarter as a result of changes in tax rates and operating results for the second quarter.
Significant changes to the sales and use tax regime include adjustments to the Business to Business exclusion. The business to business exclusion applicable to services rendered from one registered business to another registered business remains in effect, except for certain services, which will be taxable including, among others, service charges imposed by financial institutions to other businesses (commercial clients), collection services, repairs and maintenance services of real and personal property, and computer programming including modifications to previously designed systems. The sales and use tax provisions were effective beginning on July 1, 2013.
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, a non-GAAP financial measure. In addition, from time to time, earnings are adjusted also for items judged by management to be outside of ordinary banking activities and/or for items that, while they may be associated with ordinary banking activities, are so unusually large that management believes that a complete analysis of the Corporation’s performance requires consideration also of results that exclude such amounts (for additional information about these non-GAAP financial measures, see “Adjusted Pre-Tax, Pre-Provision Income” in “Basis of Presentation”).
The following table shows adjusted pre-tax, pre-provision income of $35.9 million in the second quarter of 2013, down from the prior quarter:
Less: Unrealized gain on derivative instruments and liabilities measured at fair value
Add: Bulk sales related expenses and other professional fees related to the terminated preferred stock exchange offer
Add: Loss on certain OREO properties sold as part of the bulk sale of non-performing residential mortgage assets
The reduction in adjusted pre-tax, pre-provision income from the 2013 first quarter primarily reflected:
These adverse variances were partially offset by:
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, Excluding Valuations and on a Tax-Equivalent Basis” 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 (gain) loss on derivative instruments
Unrealized gain (loss) on derivative instruments and liabilities measured at fair value
Net interest income, excluding valuations, amounted to $126.2 million, an increase of $2.1 million when compared to the first quarter of 2013. Net interest margin expanded to 4.02% for the second quarter of 2013 from 3.95% for the first quarter of 2013. The increase in net interest income and margin was mainly due to:
These increases were partially offset by:
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses for the second quarter of 2013 was $87.5 million, including $67.9 million related to the bulk sale of non-performing residential assets. The adjusted provision for loan and lease losses, excluding the impact of the bulk sales and the transfer of loans to held for sale in the first and second quarters of 2013, was $19.6 million for the second quarter of 2013, down from $47.0 million for the first quarter of 2013. The decrease was mainly reflected in the commercial and construction loan portfolios, primarily attributable to a lower migration of loans to non-performing and adversely classified categories, as well as lower underlying losses on these portfolios. See Credit Quality discussion below for additional information regarding the allowance for loan and lease losses.
NON-INTEREST (LOSS) INCOME
Non-interest loss for the second quarter of 2013 amounted to $51.7 million, compared to non-interest income of $13.6 million for the first quarter of 2013. The decrease was mainly related to the $66.6 million write-off of the collateral pledged to Lehman. Adjusted non-interest income, excluding the Lehman collateral write-off, increased $1.3 million from the 2013 first quarter primarily due to:
NON-INTEREST EXPENSES
(In thousands)
Non-interest expenses in the second quarter of 2013 amounted to $111.3 million, an increase of $13.3 million from $98.0 million for the first quarter of 2013. Non-interest expenses specifically related to the bulk sales of assets completed in the last two quarters amounted to $5.0 million and $3.9 million for the second quarter and first quarter of 2013, respectively. The main drivers of the $13.3 million increase were:
The Corporation expects to achieve reductions in credit-related expenses during the second half of 2013 as a result of the bulk sales completed during the first two quarters.
INCOME TAXES
The income tax benefit for the second quarter of 2013 amounted to $1.0 million compared to an expense of $1.6 million for the first quarter of 2013, reflecting the impact of amendments to the 2011 PR Code enacted on June 30, 2013. Some of these amendments are retroactive to January 1, 2013. Please refer to “Recent Significant Events – Changes to the Puerto Rico Internal Revenue Code” for additional information and impact on the Corporation’s operating results.
CREDIT QUALITY
Non-performing assets, excluding non-performing loans held for sale, to total assets, excluding non-performing loans held for sale
(1)Collateral pledged to Lehman Brothers, Inc.
The Corporation continues to execute its strategic plan and achieved significant improvements in credit quality metrics.
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:
Net charge-offs (annualized), excluding charge-offs related to loans sold and loans transferred to held for sale, to average loans outstanding during the period
Provision for loan and lease losses to net charge-offs during the period, excluding impact of loans sold and loans transferred to held for sale
The following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of June 30, 2013 and March 31, 2013 by loan category and by whether the allowance and related provisions were calculated individually for impairment purposes or through a general valuation allowance.
Commercial (including
Commercial Mortgage,
C&I, and Construction
loans)
Allowance for loan and lease losses to principal balance
Net Charge-Offs
The following table presents annualized net charge-offs to average loans held-in-portfolio:
(1) Includes net charge-offs totaling $97.9 million associated with the bulk sale of non-performing residential assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of non-performing residential assets, was 0.84%.
(2) Includes net charge-offs totaling $31k associated with the bulk sale of non-performing residential assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of non-performing residential assets, was 3.39%.
(3) Includes net charge-offs totaling $98.0 million associated with the bulk sale of non-performing residential assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of non-performing residential assets, was 1.29%.
(4) Includes net charge-offs totaling $1.0 million associated with the bulk sale of adversely classified commercial assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of adversely classified commercial assets, was 1.50%.
(5) Includes net charge-offs of $54.6 million associated with the bulk sale of adversely classified commercial assets and the transfer of loans to held for sale in the first quarter of 2013. The ratio of commercial mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of adversely classified commercial assets and the transfer of loans to held for sale, was 0.34%.
The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.
STATEMENT OF FINANCIAL CONDITION
Total assets were approximately $12.8 billion as of June 30, 2013, down $202.7 million from March 31, 2013. The decrease was mainly due to:
These decreases were partially offset by an increase of $72.6 million in cash and cash equivalents mainly due to balances held with the Federal Reserve Bank of New York (the “Federal Reserve”).
Total liabilities were approximately $11.6 billion as of June 30, 2013, down $21.0 million from March 31, 2013. The decrease was mainly due to:
These decreases were partially offset by a $73.4 million increase in non-brokered deposits mainly due to increases in government and demand deposits.
Total stockholders’ equity amounted to $1.2 billion as of June 30, 2013, a decrease of $181.7 million from March 31, 2013, driven by:
The Corporation’s total capital, Tier 1 capital, and leverage ratios as of June 30, 2013 were 16.61%, 15.32%, and 11.26%, respectively, compared to total capital, Tier 1 capital and leverage ratios of 17.44%, 16.15%, and 12.06%, respectively, at the end of the first quarter of 2013. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of June 30, 2013 of our banking subsidiary, FirstBank Puerto Rico, were 16.16%, 14.87%, and 10.94%, respectively, compared to total capital, Tier 1 capital, and leverage ratios of 16.98%, 15.69%, and 11.74%, respectively, at the end of the prior quarter. The decrease in capital ratios was primarily related to the total loss of $72.9 million on the bulk sale of non-performing residential assets and the $66.6 million Lehman collateral write-off. 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.
Based on our current interpretation of the Basel III capital rules, we anticipate that we will exceed the fully phased-in minimum capital ratios these rules establish.
Tangible Common Equity
The Corporation’s tangible common equity ratio decreased to 8.64% as of June 30, 2013 from 9.90% as of March 31, 2013 and the Tier 1 common equity to risk-weighted assets ratio decreased to 12.28% as of June 30, 2013 from 13.18% as of March 31, 2013.
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:
The following table reconciles stockholders’ equity (GAAP) to Tier 1 common equity:
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.
Conference Call / Webcast Information
First BanCorp’s senior management will host an earnings conference call and live webcast on Wednesday, July 24, 2013, 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 web site: www.firstbankpr.com or through a dial-in telephone number at (888) 317-6016 or (412) 317–6016 for international callers. Listeners are recommended to go to the web site at least 15 minutes prior to the call to download and install any necessary software. Following the webcast presentation, a question and answer session will be made available to research analysts and institutional investors. A replay of the webcast will be archived in the investor relations section of First BanCorp’s web site, www.firstbankpr.com, until July 24, 2014. A telephone replay will be available one hour after the end of the conference call through 9:00 a.m. Eastern timeAugust 26, 2013 at (877) 344-7529 or (412) 317-0088 for international callers. The conference number is 10031760.
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 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 (the “FDIC Order”) 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 Federal Reserve 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 impact on the credit quality of the Corporation’s loans and other assets, 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 Puerto Rico, the U.S., and the U.S. Virgin Islands and British Virgin Islands, 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, and 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, the current fiscal problems and budget deficit of the Puerto Rico government and recent credit downgrades 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 expenses; the impact on the Corporation’s results of operations and financial condition of acquisitions and dispositions; a need to recognize additional impairments on financial instruments, goodwill, or other intangible assets relating to acquisitions; the 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; the risk of losses in the value of investments in unconsolidated entities that the Corporation does not control; 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 other intangibles, such as the purchased credit card relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the 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. 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
A 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 other than temporary impairment (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.
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.
Financial measures adjusted to exclude the effect of the bulk sales of assets and loans transferred to held for sale and the write-off of the collateral pledged to Lehman
To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation provides additional measures of adjusted net income (loss), adjusted net earnings (loss) per diluted share, adjusted provision for loan and lease losses, adjusted non-interest income, adjusted non-interest expenses, adjusted provision for loan and lease losses to net charge-offs, adjusted net charge-offs, and adjusted net charge-offs to average loans to exclude the impact of the bulk sales of assets completed in each of the first two quarters of 2013, the transfer of non-performing loans to held for sale in the first quarter of 2013, and the write-off of the collateral pledged to Lehman. Management believes that these non-GAAP measures enhance the ability of analysts and investors to analyze trends in the Corporation’s business and to better understand the performance of the Corporation. In addition, the Corporation may utilize these non-GAAP financial measures as a guide in its budgeting and long-term planning process. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
Loans, net of allowance for loan and lease losses of $301,047 (March 31, 2013 - $342,531; December 31, 2012 - $435,414)
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 207,514,167 (March 31, 2013 - 206,722,833; December 31, 2012 - 206,730,318 shares issued)
Common stock outstanding, 206,982,105 shares outstanding (March 31, 2013 - 206,227,980; December 31, 2012 - 206,235,465 shares outstanding)
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 152 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 shares of common stock 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
Table 1 – Selected Financial Data
Allowance to total non-performing loans held for investment excluding residential real estate loans
2- On a tax-equivalent basis and excluding fair value valuations (Non-GAAP measure). See page 7 for GAAP to Non-GAAP reconciliations and refer to discussions in Tables 2 and 3 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.
4- The net charge-offs to average loans ratio, excluding impact associated with the bulk sales and the transfer of loans to held for sale, was 1.29%, 2.87% and 2.11% for the quarter ended June 30, 2013, March 31, 2013 and six-month period ended June 30, 2013, respectively.
5- The provision for loan and lease losses to net charge-offs ratio, excluding impact associated with the bulk sales and the transfer of loans to held for sale, was 63.19%, 67.61%, and 66.25% for the quarter ended June 30, 2013, March 31, 2013 and six-month period ended June 30, 2013, respectively.
Table 2 – Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis and Excluding Valuations)
Table 3 – Year-To-Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis and Excluding Valuations)
Table 4 – Non-Interest Income
Non-interest income before net loss on investments, equity in losses of unconsolidated entities, and write-off of collateral pledged with Lehman
Table 5 – Non-Interest Expenses
Table 7 - Loan Portfolio
Composition of the loan portfolio including loans held for sale at period-end.
Table 9 – Non-Performing Assets
(1)
Collateral pledged to Lehman Brothers, Inc.
Amount excludes purchased credit impaired loans with a carrying value as of June 30, 2013 of approximately $8.3 million acquired as part of the credit card portfolio acquired from FIA.
Table 11 – Allowance for Loan and Lease Losses
Provision for loan and lease losses to net charge-offs during the period, excluding impact of loans sold and the transfer of loans to held for sale
Table 12 – Net Charge-Offs to Average Loans
(9) Includes net charge-offs totaling $127.0 million associated with the transfer of loans to held for sale in the fourth quarter of 2010. The ratio of construction net charge-offs to average loans, excluding charge-offs associated with the transfer of loans to held for sale, was 18.93%.
First BanCorp.John B. Pelling III, 305-577-6000 Ext. 162Investor Relations Officerjohn.pelling@firstbankpr.com
Source: First BanCorp.