Press Release Details

2014 Third Quarter Highlights and Comparison with Second Quarter

• Net income of $23.2 million, or $0.11 per diluted share, compared to $21.2 million, or $0.11 per diluted share, for the second quarter of 2014.
• Pre-tax, pre-provision income of $50.8 million, up $2.1 million compared to the second quarter of 2014.
• Non-interest expenses decreased by $4.5 million to $93.6 million, primarily reflecting reductions in write-downs on other real estate owned (“OREO”) properties, the deposit insurance assessment and employees’ compensation and benefits.
• Non-interest income increased by $0.2 million to $16.2 million, primarily reflecting an increase in revenues from the mortgage banking business.
• Net interest income, excluding fair value adjustments on derivative instruments of $0.4 million, decreased by $2.4 million to $127.3 million. Net interest margin of 4.12% in the third quarter of 2014 compared to 4.20% in the second quarter of 2014. The decrease in net interest income and margin primarily reflects faster prepayment rates on U.S. agency mortgage-backed securities (“MBS”) and a decrease in the average yield of the consumer loans portfolio.
• Provision for loan and lease losses increased by $0.3 million to $27.0 million, mainly reflecting lower reserve releases on collateral dependent commercial and construction loans in Florida and an increase in the provision for residential mortgage loans, partially offset by lower specific reserve requirements on impaired commercial and industrial loans.
• Credit quality variances:
  • Non-performing assets decreased by $12.9 million, or 2%, to $744.4 million.
  • Non-performing loans, including non-performing loans held for sale, decreased by $5.2 million to $614.2 million, mainly driven by charge-offs and collections on commercial and construction loans.
  • New non-performing loan inflows decreased by $59.1 million, or 42%, compared to inflows in the second quarter of 2014.
  • The other real estate owned inventory balance decreased by $9.0 million to $112.8 million, mainly due to sales of $12.3 million completed in the third quarter and write-downs of $2.8 million, partially offset by additions.
  • No sales of non-performing loans held for sale since the third quarter of 2013.
  • Net charge-offs of $42.7 million compared to $52.3 million for the second quarter of 2014.
• Total capital, Tier 1 capital, and leverage ratios of 18.57%, 17.30%, and 12.34%, respectively, as of September 30, 2014. Common equity Tier 1 capital ratio of 14.39% and tangible common equity ratio of 9.82% as of September 30, 2014.
• Non-brokered deposits, excluding government deposits, up $76.6 million to $6.2 billion as of September 30, 2014.

• Government deposits increased by $28.9 million to $468.7 million as of September 30, 2014 from $439.7 million as of June 30, 2014, primarily in the Virgin Islands. As of September 30, 2014, the Corporation had $250.9 million of government deposits in Puerto Rico and $217.8 million in the Virgin Islands.
• Brokered certificates of deposit decreased by $33.1 million to $3.1 billion as of September 30, 2014.
• Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity) of $821.2 million for the third quarter of 2014, compared to $781.3 million for the second quarter of 2014, primarily reflecting increases in commercial loan originations in both our Florida and Puerto Rico regions.

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 net income of $23.2 million for the third quarter of 2014, or $0.11 per diluted share, compared to $21.2 million, or $0.11 per diluted share, for the second quarter of 2014 and $15.9 million, or $0.08 per diluted share, for the third quarter of 2013.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are very pleased to report net income of $23.2 million for the third quarter of 2014, a 46% increase compared to the third quarter of 2013 and our highest net income since returning to profitability. Our pre-tax, pre-provision income was strong at $50.8 million for the third quarter, up $2.1 million compared to the second quarter of 2014. The third quarter was highlighted by increased origination activity in commercial and residential loans and over $105 million in core deposit growth.”

Mr. Alemán continued, “Despite the still challenging economic environment and its impact on the consumer in Puerto Rico, we have stayed the course in the execution of our strategies. While our overall loan portfolio declined slightly due to some pay downs of commercial loans and lower consumer loan volumes, our pipeline remains stable. We continue to proactively manage our expense base and implement efficiency initiatives. Our non-performing assets and loans declined slightly this quarter. We also saw a decrease in inflows of non-performing loans as well as a decrease in adversely classified loans compared to the second quarter of 2014.”

Mr. Alemán stated further: “Earnings generation over the past three quarters has strengthened our capital position. Asset quality improvement remains our top priority, we will continue to invest in our franchise and improve operating efficiency, and evaluate market opportunities in order to achieve consistent, profitable growth in the future and generate appropriate returns for our shareholders.”

This press release includes certain non-GAAP financial measures, including adjusted pre-tax, pre-provision income, adjusted net interest income and margin, and certain capital ratios 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 measured at fair value and equity in earnings or loss of unconsolidated entity, which is 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 this non-GAAP financial measure, see “Adjusted Pre-Tax, Pre-Provision Income” in “Basis of Presentation”).

The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters including adjusted pre-tax, pre-provision income of $50.8 million in the third quarter of 2014, up $2.1 million from the prior quarter:

The increase in adjusted pre-tax, pre-provision income from the 2014 second quarter primarily reflected:

• A $4.4 million decrease in adjusted non-interest expenses of $92.9 million for the third quarter of 2014, as compared to adjusted non-interest expenses of $97.3 million for the second quarter of 2014, primarily due to a $2.5 million decrease in OREO losses and related operating expenses, a $1.2 million decrease in the deposit insurance assessment and a $1.1 million decrease in employees’ compensation and benefits expense. See Non-Interest Expenses section below for additional information.

Adjusted non-interest expenses in the last two quarters exclude: (i) professional service fees related to acquisitions of mortgage loans from Doral Financial Corporation ("Doral"); and (ii) expenses related to branch consolidations and other restructuring efforts. See Basis of Presentation section below for a reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.

• A $0.1 million increase in adjusted non-interest income of $16.4 million for the third quarter of 2014, as compared to $16.3 million for the second quarter of 2014, reflecting a $0.8 million increase in revenues from the mortgage banking business, partially offset by decreases in insurance commission income as well as credit and debit cards fee income.

Adjusted non-interest income excludes the equity in earnings (loss) of unconsolidated entity, gain or loss on sales of investment securities and other-than-temporary impairment (“OTTI”) on investment securities. See Basis of Presentation section below for a reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.

Partially offset by:

• A $2.4 million decrease in net interest income, excluding fair value adjustments, mainly driven by faster prepayment rates on U.S. agency MBS investments and a decrease in the average yield on consumer loans. See Net Interest Income discussion below for additional information.

NET INTEREST INCOME

Net interest income, excluding fair value adjustments on derivatives (“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.

Net interest income, excluding valuations, amounted to $127.3 million, a decrease of $2.4 million when compared to the second quarter of 2014. The net interest margin decreased to 4.12% for the third quarter of 2014 from 4.20% for the second quarter of 2014. The decreases in net interest income and margin were mainly due to:

• A 39 basis point decrease in the average yield of consumer loans, or a decrease of approximately $2.1 million in interest income, as the remaining discount of $1.5 million of the credit card portfolio acquired in 2012 was fully accreted to income during the second quarter of 2014. The decrease also reflects the impact of new loan originations booked at lower rates than the average yield of loans that are maturing given the current level of interest rates.
• A 35 basis point decrease in the average yield of MBS investments, or a decrease of approximately $1.5 million in interest income, attributable to faster prepayment rates on U.S. agency MBS investments purchased at a premium.

• A $1.1 million decrease in interest income attributable to the $126.5 million reduction in total average earning assets.
• A 16 basis point increase in the average cost of repurchase agreements, or an increase of approximately $0.4 million in interest expense, attributable to the contractual repricing of a $100 million agreement.

Partially offsetting the aforementioned items were:

• Increased interest income reflecting the full quarter impact of the acquisition of mortgage loans from Doral in full satisfaction of secured borrowings on May 30, 2014. The interest income recorded on such loans was approximately $1.8 million higher than the interest income recorded in the second quarter on previous commercial secured borrowings.
• An increase in net interest income of approximately $0.7 million related to the impact of one additional day in the current quarter.
• A $0.3 million decrease in interest expense attributable to the $149.8 million reduction on total interest-bearing liabilities, primarily reflecting the full quarter impact of government deposit withdrawals by public corporations in Puerto Rico in the latter part of the second quarter of 2014.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses for the third quarter of 2014 was $27.0 million, an increase of $0.3 million, compared to $26.7 million for the second quarter of 2014. The Corporation recorded a negative provision for loan losses of $7.1 million for the commercial and construction loan portfolio in Florida compared to a negative provision of $10.5 million in the second quarter of 2014. Despite higher loan loss recoveries, the variance in the provision mainly reflects the impact in the previous quarter of reserve releases related to updated appraisals.

The provision for residential mortgage loans in the third quarter of 2014 increased by $2.0 million to $5.9 million compared to the second quarter of 2014 primarily due to an increase in charge-offs and the overall increase in portfolio size. The provision for consumer loans of $19.0 million in the third quarter of 2014 remained relatively flat as compared to the second quarter of 2014, an increase of $0.2 million.

The provision for commercial and construction loans in Puerto Rico in the third quarter of 2014 decreased by $5.3 million to $8.9 million compared to the second quarter of 2014 mainly related to lower specific reserve requirements on certain noncollateral dependent loans, including the specific reserve of a commercial and industrial loan determined impaired during the third quarter that was less than the estimated loss previously held as part of the general reserve, partially offset by an increase in net charge-offs of commercial and industrial loans and the impact in the previous quarter of a $4.8 million reserve release associated with the enhancements to the general allowance estimation process.

See Credit Quality discussion below for additional information regarding the allowance for loan and lease losses, including variances in charge-offs and loss recoveries.

NON-INTEREST INCOME

Non-interest income for the third quarter of 2014 amounted to $16.2 million, compared to $15.9 million for the second quarter of 2014. The increase was primarily due to:

• A $0.8 million increase in revenues from the mortgage banking business, primarily related to a $0.5 million decrease in losses related to compensatory fees imposed by government-sponsored agencies, and a $0.5 million decrease in mark-to-market losses on to-be-announced (“TBA”) MBS forward contracts used to hedge the securitization pipeline.

The aforementioned were partially offset by a $0.2 million decrease in realized gains on loan sales and securitization activities attributable to lower sales. Loans sold and securitized in the secondary market to government-sponsored entities in the third quarter of 2014 amounted to $75.1 million with a related gain of $2.7 million, compared to $83.1 million and a gain of $2.9 million recorded in the second quarter of 2014.

• A $0.7 million positive variance related to the accounting for the Bank’s investment in CPG/GS PR NPL, LLC (“CPG/GS”). The equity in loss of unconsolidated entity of $0.7 million recorded in the second quarter of 2014 reduced to zero the book value of the Bank’s investment in CPG/GS. The Bank holds a 35% subordinated ownership interest in CPG/GS, the entity that purchased $269.2 million of loans from FirstBank in 2011. This investment is accounted for under the equity method and following the hypothetical liquidation book value (“HLBV”) method to determine the Bank’s share in CPG/GS earnings or losses.

Partially offset by:

• A $0.4 million decrease in other operating income that includes reductions in credit and debit card fees, merchant fees and losses on sales of certain fixed assets.
• The impact in the previous quarter of the $0.3 million gain on sale of investments recorded in connection with the sale of a $4.6 millionPuerto Rico government agency bond.
• A $0.2 million decrease in insurance commission income.
• A $0.2 million other-than-temporary impairment on private label MBS.

Non-interest expenses in the third quarter of 2014 amounted to $93.6 million, a decrease of $4.5 million from $98.1 million for the second quarter of 2014. The main drivers of the decrease were:

• A $2.5 million decrease in losses on OREO properties and related operating expenses. Total write-downs on OREO properties in the third quarter of 2014 amounted to $2.8 million compared to $5.2 million for the second quarter of 2014, a decrease of $2.4 million.
• A $1.2 million decrease in the deposit insurance assessment driven by improvements in liquidity, a decrease in leverage commercial loans balance, a strengthened capital position, and a decrease in average assets.
• A $1.1 million decrease in employees’ compensation and benefit expenses primarily due to a reduction in performance-based compensation and stock-based compensation expense.

INCOME TAXES

The Corporation recorded an income tax expense for the third quarter of 2014 of $0.1 million compared to an income tax benefit of $0.3 million for the second quarter of 2014. The income tax benefit in the previous quarter mainly resulted from the $1.8 million adjustment recorded to reduce the liability for uncertain tax positions of prior years that was partially offset by a $1.0 million charge to the Alternative Minimum Tax (“AMT”) expense in the second quarter. 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 and, thus, the Corporation is not able to utilize losses from one subsidiary to offset gains in another subsidiary. As of September 30, 2014, the deferred tax asset, net of a valuation allowance of $505.2 million, amounted to $9.9 million.

CREDIT QUALITY

Non-Performing Assets

Credit quality metrics variances:

• Total non-performing assets decreased to $744.4 million as of September 30, 2014, compared to $757.3 million as of June 30, 2014. Total non-performing loans, including non-performing loans held for sale, decreased by $5.2 million, or 1%, from the second quarter of 2014. The decrease was primarily driven by charge-offs of commercial and industrial and construction loans in both Puerto Rico and the Virgin Islands regions, partially offset by increases in consumer, residential and commercial mortgage non-performing loans. The largest individual relationship placed in non-performing status during the third quarter of 2014 was a $4.7 million defaulted commercial mortgage restructured loan.
• Inflows of non-performing loans held for investment decreased by $59.1 million, or 42%, compared to inflows in the second quarter of 2014. This decrease was primarily reflected in the commercial and industrial and commercial mortgage portfolios, a decrease of $64.6 million. These decreases were partially offset by an increase in inflows of non-performing residential mortgage loans of $5.7 million.
• Adversely classified commercial and construction loans held for investment decreased by $35.0 million to $571.4 million, or 6%, from the second quarter of 2014.
• The OREO balance decreased by $9.0 million, driven by sales of $12.3 million and write-downs of $2.8 million, partially offset by additions.
• Total troubled debt restructured loans (“TDRs”) held for investment were $701.1 million at September 30, 2014, up $72.9 million, or 12%, from June 30, 2014. Approximately $485.1 million of total TDRs held for investment were in accrual status as of September 30, 2014. The increase in the balance of TDRs was mainly related to the forbearance granted in the third quarter of 2014 to the $75.0 million direct exposure with the Puerto Rico Electric Power Authority (“PREPA”). See Exposure to the Puerto Rico Government discussion below for additional information.

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:

• The ratio of the allowance for loan and lease losses to loans held for investment was 2.42% as of September 30, 2014, compared to 2.55% as of June 30, 2014. The slight decrease in the ratio was primarily due to lower specific reserve requirements on certain noncollateral dependent commercial and industrial loans and certain charge-offs of loans with previously established reserves. The ratio of the allowance to non-performing loans held for investment was 40.29% as of September 30, 2014 compared to 42.71% as of June 30, 2014.

The following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of September 30, 2014 and June 30, 2014 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

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.

• Net charge-offs for the third quarter of 2014 were $42.7 million, or an annualized 1.80%, compared to $52.3 million, or an annualized 2.19% in the second quarter of 2014. Net charge-offs for the second quarter of 2014 included a $6.9 million charge-off resulting from fair value adjustments related to the mortgage loans acquired from Doral in full satisfaction of commercial secured borrowings. Excluding the charge-offs resulting from the Doral transaction, total net charge-offs decreased by $2.7 million, primarily due to an increase in loss recoveries. Approximately $16.0 million of the charge-offs recorded in the third quarter of 2014 relates to two collateral dependent commercial and industrial relationships in Puerto Rico. Recoveries of amounts previously charged-off increased to $11.2 million in the third quarter of 2014 from $6.7 million in the second quarter of 2014. The majority of the recoveries recorded in the last two quarters are related to the commercial mortgage and construction loan portfolios in Florida.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $12.6 billion as of September 30, 2014, up $120.0 million from June 30, 2014.

The increase was mainly due to:

• A $292.3 million increase in cash and cash equivalents, tied to the increase in deposits and cash inflows from loan repayments.

Partially offset by:

• A $136.0 million decrease in loans held for investment, net of allowance, mainly reflecting decreases in commercial loans, including a $63.8 million decrease in outstanding loans to government entities in Puerto Rico and the Virgin Islands, a $54.6 million commercial and industrial loan paid in full in Puerto Rico before contractual maturity, and an $18.8 million commercial mortgage loan paid in full in Florida.

Total loan originations, including refinancings, renewals, and draws from existing revolving and non-revolving commitments, amounted to approximately $821.2 million, compared to $781.3 million in the second quarter of 2014. These figures exclude the credit card utilization activity. The increase was mainly related to commercial and industrial loans in both our Puerto Rico and the Virgin Islands regions.

• A $20.3 million decrease in available-for-sale securities, mainly due to regular MBS repayments and a $5.9 million decrease in the fair value of available-for-sale securities, partially offset by the purchase of approximately $44 million of U.S. government and sponsored-agencies debt securities with an average yield of 1.72%.

• A $9.0 million decrease in the OREO inventory balance driven by sales of $12.3 million and write-downs of $2.8 million, partially offset by additions in the quarter.

Total liabilities were approximately $11.3 billion as of September 30, 2014, up $101.9 million from June 30, 2014.

The increase was mainly due to:

• A $76.6 million increase in non-brokered deposits, excluding government deposits, mainly savings and retail CDs in Puerto Rico.
• A $28.9 million increase in government deposits, mainly related to transactional accounts in the Virgin Islands.
• A $25.0 million 4-year FHLB advance with a rate of 1.79% entered into in the third quarter that replaced a $20.0 million advance that matured early in the quarter.

Partially offset by:

• A $33.1 million decrease in brokered CDs.

Total stockholders’ equity amounted to $1.3 billion as of September 30, 2014, an increase of $18.2 million from June 30, 2014, mainly driven by:

• The net income of $23.2 million reported in the third quarter.

Partially offset by:

• A decrease of $5.9 million in other comprehensive income mainly attributable to a decrease in the fair value of U.S. agency MBS and debt securities of approximately $7.6 million, partially offset by an increase of $1.3 million in the fair value of Puerto Rico government obligations held by the Corporation as part of its available-for-sale investment securities portfolio. See Exposure to Puerto Rico Government section below for additional information.

The Corporation’s total capital, Tier 1 capital, and leverage ratios as of September 30, 2014 were 18.57%, 17.30%, and 12.34%, respectively, compared to total capital, Tier 1 capital and leverage ratios of 18.06%, 16.80%, and 12.04%, respectively, as of the end of the second quarter of 2014. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of September 30, 2014 of our banking subsidiary, FirstBank Puerto Rico, were 18.21%, 16.95%, and 12.10%, respectively, compared to total capital, Tier 1 capital, and leverage ratios of 17.70%, 16.43%, and 11.79%, respectively, as of the end of the prior quarter. All of the regulatory capital ratios for the Bank are well above the minimum required under the consent order entered into with the FDIC and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. Given such consent order, however, the Bank cannot be considered to be a well-capitalized institution.

Based on our current interpretation of the international regulatory capital requirements adopted by the Basel Committee on Banking Supervision (known as “Basel 3”), we anticipate that, when these are effective, we will exceed the fully phased-in minimum capital ratios these rules establish.

Tangible Common Equity

The Corporation’s tangible common equity ratio increased to 9.82% as of September 30, 2014 from 9.76% as of June 30, 2014, and the Tier 1 common equity to risk-weighted assets ratio increased to 14.39% as of September 30, 2014 from 13.92% as of June 30, 2014.

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 based on current applicable bank regulatory requirements (known as “Basel 1”):

Exposure to Puerto Rico Government

As of September 30, 2014, the Corporation had $364.3 million of credit facilities granted to the Puerto Rico Government, its municipalities and public corporations, of which $316.3 million was outstanding, compared to $340.7 million outstanding as of June 30, 2014. Approximately $201.4 million of the granted credit facilities outstanding consisted of loans to municipalities in Puerto Rico for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment. Approximately $24.8 million consisted of loans to units of the central government, and approximately $90.1 million consisted of loans to public corporations, including a $75.0 million direct exposure to PREPA. In addition, the Corporation had $200.4 million outstanding in financings to the hotel industry in Puerto Rico guaranteed by the Puerto Rico Tourism Development Fund.

In August 2014, PREPA entered into a forbearance agreement with a group of banks, including First Bank, to extend further its maturing credit lines to March 31, 2015.

The Corporation had outstanding $61.1 million in obligations of the Puerto Rico government as part of its available-for-sale investment securities portfolio carried on its books at a fair value of $46.4 million as of September 30, 2014. The fair value of the Puerto Rico government obligations held by the Corporation increased by approximately $1.3 million during the third quarter of 2014.

As of September 30, 2014, the Corporation had $250.9 million of public sector deposits in Puerto Rico, compared to $252.6 million as of June 30, 2014. Approximately 57% is from municipalities in Puerto Rico and 43% is from public corporations and the central government and agencies.

Conference Call / Webcast Information

First BanCorp’s senior management will host an earnings conference call and live webcast on Tuesday, October 28, 2014, 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 (877) 506-6537 or (412) 380–2001 for international callers. The Corporation recommends that listeners 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 October 28, 2015. A telephone replay will be available one hour after the end of the conference call through November 28, 2014 at (877) 344-7529 or (412) 317-0088 for international callers. The conference number is 10054531.

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 Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. 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 (the “New York Fed”) and the consent 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 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 New York Fed or the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) 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 has contributed and may continue to contribute to, among other things, high levels of non-performing assets, charge-offs, and provisions and may subject the Corporation to further risk from loan defaults and foreclosures; the ability of FirstBank to realize the benefit of its deferred tax asset; 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; a credit default by the Puerto Rico government or any of its public corporations or other instrumentalities, and recent and any future downgrades of the long-term and short-term debt ratings of the Puerto Rico government, which could exacerbate Puerto Rico’s adverse economic conditions; 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 of the Puerto Rico government and recent credit downgrades of the Puerto Rico government’s debt; the risk that any portion of the unrealized losses in the Corporation’s investment portfolio is determined to be other-than-temporary, including unrealized losses on Puerto Rico government obligations; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S., and the U.S. Virgin Islands 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; changes in the fiscal and monetary policies and regulations of the U.S. federal government, including those determined by the Federal Reserve Board, the New York Fed, 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 risk 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 financial 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 current applicable bank regulatory requirements (Basel 1). 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

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management believes is useful in analyzing underlying performance trends, particularly in times of economic stress. Adjusted pre-tax, pre-provision income, as defined by management, represents net income (loss) 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, equity in earnings or loss of unconsolidated entity as well as certain items identified as unusual, non-recurring or non-operating.

In addition, from time to time, adjusted pre-tax, pre-provision income will reflect the omission of revenue or expense items that management judges to be outside of ordinary banking activities and/or of 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 adjusted pre-tax, pre-provision income that excludes 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 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 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 expenses related to the acquisitions of mortgage loans from Doral, expenses related to branch consolidations and other restructuringexpenses, equity in earnings (loss) of unconsolidated entity, gains or losses on sales of investment securities and OTTI of investment securities.

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation provides additional measures of adjusted non-interest expenses and adjusted non-interest income. Adjusted non-interest expenses exclude professional service fees specifically related to the acquisitions of mortgage loans from Doral, expenses related to branch consolidations in Puerto Rico, and expenses associated with the restructuring of some business units. Adjusted non-interest income excludes equity in earnings (loss) of unconsolidated entity, gains (losses) on sales of investments and OTTI of investment securities. 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. The following table shows reconciliations of these non-GAAP financial measures to the corresponding measures calculated and presented in accordance with GAAP.

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 143 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.