2013 Fourth Quarter Highlights and Comparison with Third 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 net income of $14.8 million for the fourth quarter of 2013, or $0.07 per diluted share, compared to $15.9 million, or $0.08 per diluted share, for the third quarter of 2013 and net income of $14.5 million, or $0.07 per diluted share, for the fourth quarter of 2012. For the year ended December 31, 2013, the Corporation reported a net loss of $164.5 million, compared to net income of $29.8 million for the year ended December 31, 2012.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “Results for 2013 reflect year-over-year improvements in our franchise in a number of key areas, in spite of the challenges still present in our economic environment. We made significant progress in financial metrics achieving pre-tax, pre-provision income of $184 million, up from the prior year; net interest income of $515 million, an increase of $53 million from the prior year; net interest margin of 4.11%, up significantly from 3.64% in the prior year. We grew our total deposits, excluding brokered CDs, by $247.8 million and loan origination activity increased over $600 million to $3.7 billion. Also, our credit-risk profile improved considerably as total non-performing assets decreased 41% from last year, or $513 million, to $725 million.
Our profitability in the fourth quarter was affected by various extraordinary items, such as charges related to the Lehman litigation and additional credit-related expenses associated with managing our legacy portfolio. We also incurred some restructuring charges as we consolidate several branches and operations. Our net interest margin expanded to 4.25%, and loan originations increased to $972 million. Our non-performing assets decreased slightly, as we continue moving our troubled legacy loans into a better disposition state. Our capital levels remain strong.
We are prepared to continue managing the challenging economic environment in our main market. That said we remain encouraged by the proactive steps taken by the Puerto Rico government to address the fiscal situation and look forward to more stable market conditions. We remain focused on improving profitability as we effectively execute our strategic plan.”
The adjusted net income of $18.5 million for the fourth quarter of 2013, compared to $19.3 million for the third quarter of 2013, excludes:
The results for the year ended December 31, 2013 were negatively impacted by two significant items: (i) an aggregate loss of $140.8 million on two separate bulk sales of adversely classified and non-performing assets and valuation adjustments to certain loans transferred to held for sale, and (ii) a $66.6 million loss related to the write-off of assets pledged as collateral to Lehman together with an additional $2.5 million for a loss contingency of attorneys’ fees awarded to the counterparty related to this matter. Excluding these items, net income for the year ended December 31, 2013 was $45.4 million.
The following table shows a reconciliation with respect to the results of operations for the year ended December 31, 2013 excluding the impact of the bulk sales of assets, the transfer of loans to held for sale, and the write-off of the collateral pledged to Lehman and related contingency of attorneys’ fees, with the corresponding measures calculated and presented in accordance with GAAP:
This press release includes certain other 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 shows adjusted pre-tax, pre-provision income for the last five quarters including adjusted pre-tax, pre-provision income of $47.6 million in the fourth quarter of 2013, down $3.3 million from the prior quarter:
The decrease in adjusted pre-tax, pre-provision income from the 2013 third quarter primarily reflected:
Adjusted non-interest expenses in the last two quarters exclude: (i) a loss contingency related to attorneys’ fees granted by the court to Barclays Capital in connection with the denial of the Corporation’s Summary Judgment on its claim to recover assets pledged to Lehman, which the Corporation will appeal, (ii) expenses and valuation adjustments recorded in the fourth quarter of 2013 related to branch consolidations and other restructuring efforts, (iii) the impact of the national gross receipts tax related to the trade or business outside of Puerto Rico that was reversed in the fourth quarter of 2013 after enactment of Act No. 117 that introduced amendments to the 2013 Tax Burden Adjustment and Redistribution Act (“Act 40”), and (iv) costs associated with the conversion of the credit card processing platform and expenses related to the common stock offering by certain of the Corporation’s existing stockholders completed in the third quarter of 2013. See Basis of Presentation section below for reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.
Partially offset by:
Adjusted non-interest income excludes the equity in earnings (loss) of unconsolidated entity and valuation adjustments on fixed assets as they are no longer being used for operations after the consolidation of certain branches in Florida. See Basis of Presentation section below for reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.
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.
Net interest income, excluding valuations, amounted to $132.3 million, an increase of $1.6 million when compared to the third quarter of 2013. Net interest margin, excluding valuations, expanded to 4.24% for the fourth quarter of 2013 from 4.19% for the third 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 fourth quarter of 2013 was $23.0 million, compared to $22.2 million for the third quarter of 2013. The provision for commercial and industrial loans increased by $10.3 million, compared to the provision for the third quarter, mainly related to the migration of two relationships into adversely classified categories, an increase in the general reserve and, to a lesser extent, the overall increase in the volume of this portfolio. The provision for consumer loans increased by $1.9 million, compared to the provision for the third quarter, mainly related to the increase in the general reserve for auto loans based on historical loss experience and higher reserves for adversely classified boat loans. These increases were partially offset by an $11.4 million decrease in the provision for commercial mortgage loans mainly due to improvements in charge-off trends reflected in a lower general reserve, a lower reserve requirement for certain collateral dependent loans, and a significant recovery on a large loan paid off in Florida. See Credit Quality discussion below for additional information regarding the allowance for loan and lease losses.
NON-INTEREST INCOME (LOSS)
Non-interest income for the fourth quarter of 2013 amounted to $12.5 million, compared to $10.1 million for the third quarter of 2013. The increase was primarily due to:
Professional fees:
Non-interest expenses in the fourth quarter of 2013 amounted to $106.5 million, an increase of $7.4 million from $99.2 million for the third quarter of 2013. Non-interest expenses for the fourth quarter included several unusual items: (i) a $2.5 million loss contingency related to attorneys’ fees granted by the court to Barclays Capital in connection with the denial of the Corporation’s Summary Judgment on its claim to recover assets pledged to Lehman, which the Corporation will appeal, (ii) expenses of $0.9 million related to the branch consolidations and other restructuring efforts, and (iii) the reversal of approximately $0.5 million in expenses related to the portion of the national gross receipts related to the Corporation’s trade or business outside of Puerto Rico that was previously accrued in the second and third quarter of 2013. This amount was reversed in the fourth quarter after enactment of Act 117, which introduced amendments to Act 40, which was enacted on June 30, 2013. The reversal, as well as the accrual, is reflected as part of “Taxes, other than income taxes” in the table above. Results for the third quarter included approximately $1.7 million in costs associated with the secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders and $1.7 million in costs associated with the conversion of the credit card processing platform.
Adjusted non-interest expenses, which exclude the expenses identified in the foregoing paragraph, amounted to $103.6 million for the fourth quarter of 2013, up $7.9 million compared to the third quarter. The main drivers of the increase were:
INCOME TAXES
The income tax expense for the fourth quarter of 2013 amounted to $0.8 million compared to $3.7 million for the third quarter of 2013. The decrease primarily reflects the impact in the previous quarter of a $3.0 million increase in reserves for uncertain tax positions. Aside from reserves for uncertain tax positions, most of the income tax expense recorded in 2013 relates to profitable subsidiaries. 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 December 31, 2013, the deferred tax asset, net of a valuation allowance of $522.7 million, amounted to $7.6 million.
CREDIT QUALITY
Non-Performing Assets
(1)
Collateral pledged to Lehman Brothers, Inc.
(2)
Amount excludes purchased credit impaired loans with a carrying value as of December 31, 2013 of approximately $4.8 million acquired as part of the credit card portfolio acquired from FIA Card Services ("FIA").
Credit quality metrics remained relatively stable
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 following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of December 31, 2013 and September 30, 2013 by loan category and by whether the allowance and related provisions were calculated individually for impairment purposes or through a general valuation allowance:
ResidentialMortgage Loans
Commercial (includingCommercial Mortgage,C&I, and Construction loans)
Consumer andFinance Leases
Net Charge-Offs
The following table presents annualized net charge-offs to average loans held-in-portfolio:
% (1)
% (4)
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%.
Includes net charge-offs totaling $31 thousand associated with the bulk sale of non-performing residential assets. The ratio of construction 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 total 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%.
(6)
Includes net charge-offs totaling $44.7 million associated with the bulk sale of adversely classified commercial assets. The ratio of commercial and industrial net charge-offs to average loans, excluding charge-offs associated with the bulk sale of adversely classified commercial assets, was 5.47%.
(7)
Includes net charge-offs of $34.2 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 construction loans 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 7.74%.
(8)
Includes net charge-offs of $134.5 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 total 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 2.87%.
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 $12.7 billion as of December 31, 2013, down $130.5 million from September 30, 2013.
The decrease was mainly due to:
These decreases were partially offset by:
Total loan originations, including refinancings and draws from existing revolving and non-revolving commitments, amounted to approximately $885.8 million, compared to $836.6 million in the third quarter of 2013. These figures exclude the credit cards utilization activity. The increase was mainly related to facilities granted to government entities in both Puerto Rico and the Virgin Islands, partially offset by a decline in residential mortgage and auto loan originations attributable, in part, to a decrease in consumer demand.
Total liabilities were approximately $11.4 billion as of December 31, 2013, down $125.8 million from September 30, 2013.
Total stockholders’ equity amounted to $1.2 billion as of December 31, 2013, a decrease of $4.7 million from September 30, 2013, driven by:
The Corporation’s total capital, Tier 1 capital, and leverage ratios as of December 31, 2013 were 17.06%, 15.78%, and 11.71%, respectively, compared to total capital, Tier 1 capital and leverage ratios of 16.89%, 15.61%, and 11.65%, respectively, as of the end of the third quarter of 2013. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of December 31, 2013 of our banking subsidiary, FirstBank Puerto Rico, were 16.67%, 15.40%, and 11.44%, respectively, compared to total capital, Tier 1 capital, and leverage ratios of 16.48%, 15.20%, and 11.35%, 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 they 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 8.71% as of December 31, 2013 from 8.65% as of September 30, 2013, and the Tier 1 common equity to risk-weighted assets ratio increased to 12.72% as of December 31, 2013 from 12.55% as of September 30, 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 based on current applicable bank regulatory requirements (known as “Basel 1”):
1- Tier 1 capital excludes net unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on available-for-sale equity securities with readily determinable fair values, in accordance with regulatory risk-based capital guidelines. In arriving at Tier 1 capital, institutions are required to deduct net unrealized losses on available-for-sale equity securities with readily determinable fair values, net of tax.
2- Approximately $7.9 million of the Corporation's deferred tax assets as of December 31, 2013 (September 30, 2013 - $7.7 million; June 30, 2013 - $10 million; March 31, 2013 - $10 million; December 31, 2012 - $11 million) was included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $0 of such assets as of December 31, 2013 (September 30, 2013 - $43 thousand; June 30, 2013 - $0; March 31, 2013 - $0; December 31, 2012 - $0) 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 $0.3 million of the Corporation's other net deferred tax liability as of December 31, 2013 (September 30, 2013 - $0.3 million; June 30, 2013 - $3 million; March 31, 2013 - $6 million; December 31, 2012 - $6 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.
Exposure to Puerto Rico Government
As of December 31, 2013, the Corporation had $454.6 million of credit facilities granted to the Puerto Rico Government, its municipalities and public corporations, of which $397.8 million was outstanding, compared to $326.7 million as of September 30, 2013. Approximately $200.5 million of the granted credit facilities outstanding consists of loans to municipalities in Puerto Rico for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality has been pledged to their repayment. Approximately $84.6 million consists of loans to public corporations that obtain revenues from rates charged for services or products, such as electric power, and approximately $112.7 million consists of loans to the central government or units of the central government. In addition, the Corporation had $205.1 million outstanding in financings to the hotel industry in Puerto Rico guaranteed by the Puerto Rico Tourism Development Fund.
In addition, the Corporation had outstanding $71.0 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 $51.3 million as of December 31, 2013, compared to $49.2 million as of September 30, 2013.
As of December 31, 2013, the Corporation had $546.5 million of public sector deposits in Puerto Rico, compared to $584.1 million as of September 30, 2013. Approximately 21% come from municipalities in Puerto Rico and 79% come from public corporations and the central government.
Conference Call / Webcast Information
First BanCorp’s senior management will host an earnings conference call and live webcast on Tuesday, February 4, 2014, at 11:00 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. 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 February 4, 2015. A telephone replay will be available one hour after the end of the conference call through 9:00 a.m. Eastern timeMarch 4, 2014 at (877) 344-7529 or (412) 317-0088 for international callers. The conference number is 10040151.
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 (“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, the 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 the 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; 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; a credit default by the Puerto Rico government or any of its public corporations or other instrumentalities, and recent and/or future downgrades of the long-term debt ratings of the Puerto Rico government, which could adversely affect economic conditions in Puerto Rico; 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 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 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 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 (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 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 expenses 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 financial liabilities elected to be measured at fair value 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 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 secondary offering costs, the credit card processing platform conversion costs, attorneys’ fees related to the Lehman litigation, expenses related to branch consolidations and other restructuringexpenses and related valuation adjustments, equity in earnings (loss) of unconsolidated entity, and certain other adjustments.
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 attorneys’ fees related to the Lehman litigation recorded in the fourth quarter of 2013, expenses in the fourth quarter of 2013 related to branch consolidations in Florida and the Virgin Islands and expenses associated with the restructuring of some business units, the costs associated with the conversion of the credit card processing platform recorded in the third quarter of 2013, the impact of the national gross receipts tax related to the trade or business outside of Puerto Rico that was reversed in the fourth quarter of 2013 after enactment of Act No. 117 that introduced amendments to Act 40, which was enacted on June 30, 2013, and the costs associated with the secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders recorded in the third quarter of 2013. Adjusted non-interest income excludes equity in earnings (loss) of unconsolidated entity and a valuation adjustment to fixed assets that are no longer used for operations after branch consolidations in Florida. 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.
Preferred Stock, authorized 50,000,000 shares: issued 22,828,174 shares; outstanding 2,521,872; aggregate liquidation value $63,047
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 148 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
2- On a tax-equivalent basis and excluding fair value valuations (Non-GAAP measure). See page 5 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 the impact associated with the bulk sales and the transfer of loans to held for sale, was 1.68% for the year ended December 31, 2013.
5- The provision for loan and lease losses to net charge-offs ratio, excluding the impact associated with the bulk sales and the transfer of loans to held for sale, was 69.47% for the year ended December 31, 2013.
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
Table 5 – Non-Interest Expenses
Table 6 – Selected Balance Sheet Data
(In thousands)
Balance Sheet Data:
Table 7 – Loan Portfolio
Composition of the loan portfolio including loans held for sale at period-end.
(1) During the second quarter of 2013, after a comprehensive review of substantially all of the loans in our commercial portfolios, the classification of certain loans was revised to more accurately depict the nature of the underlying loans. This reclassification resulted in a net increase of $269.0 million in commercial mortgage loans, since the principal source of repayment for such loans is derived primarily from the operation of the underlying real estate, with a corresponding decrease of $246.8 million in commercial and industrial loans and a $22.2 million decrease in construction loans. The Corporation evaluated the impact of this reclassification on the provision for loan losses and determined that the effect of this adjustment was not material to any previously reported results.
Table 9 – Non-Performing Assets
(1) Collateral pledged to Lehman Brothers, Inc.
(2) Amount excludes purchased credit impaired loans with a carrying value as of December 31, 2013 of approximately $4.8 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
(2) 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 0.45%.
(4) Includes net charge-offs of $34.2 million associated with the bulk loan sales and the transfer of loans to held for sale. The ratio of construction loans net charge-offs to average loans, excluding charge-offs associated with the bulk loan sales and the transfer of loans to held for sale, was 2.91%.
(5) Includes net charge-offs of $232.4 million associated with the bulk loan sales and the transfer of loans to held for sale. The ratio of total net charge-offs to average loans, excluding charge-offs associated with the bulk loan sales and the transfer of loans to held for sale, was 1.68%.
(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%.
(10) Includes net charge-offs totaling $165.1 million associated with the transfer of loans to held for sale in the fourth quarter of 2010. The ratio of total net charge-offs to average loans, excluding charge-offs associated with the transfer of loans 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.