Press Release Details

2015 Third Quarter Highlights and Comparison with Second Quarter

• Net income of $14.8 million, or $0.07 per diluted share, compared to a net loss of $34.1 million, or $0.16 per diluted share, for the second quarter of 2015. As previously reported, the financial results for the second quarter were adversely impacted by a $48.7 million pre-tax loss on a bulk sale of assets, a $12.9 million pre-tax other-than-temporary impairment on Puerto Rico Government securities, and pre-tax costs of $2.6 million related to the conversion of loan and deposit accounts acquired from Doral Bank (“Doral”) to the FirstBank systems completed in the second quarter.
• Pre-tax income of $19.2 million, compared to pre-tax income of $20.2 million excluding the aforementioned significant items for the second quarter of 2015.
• Adjusted pre-tax, pre-provision income of $50.5 million, compared to $47.7 million for the second quarter of 2015, an improvement largely driven by a reduction in non-interest expenses.
• Net interest income decreased by $1.6 million to $124.9 million. Adjusted net interest income, excluding fair value adjustments on derivative instruments of $0.1 million, decreased by $1.7 million to $124.8 million. The related net interest margin remained almost flat, an increase of 1 basis point to 4.19% in the third quarter of 2015.
• Provision for loan and lease losses of $31.2 million, compared to $74.3 million for the second quarter of 2015. Excluding the $46.9 million charge to the provision related to the bulk sale of assets recorded in the second quarter, the provision for loan and lease losses increased by $3.9 million.
• Non-interest income of $18.8 million, a decrease of $1.3 million compared to adjusted non-interest income of $20.1 million for the second quarter of 2015. The decrease was driven by lower earnings from mortgage banking activities and a decrease in insurance commissions income.
• Non-interest expenses of $93.3 million, a decrease of $5.8 million compared to adjusted non-interest expenses of $99.1 million for the second quarter of 2015. The decrease primarily reflects reductions in professional service fees.
• Credit quality variances:
  • Non-performing assets decreased in the quarter by $27.3 million, or 4%, to $617.2 million.
  • New non-performing loan inflows amounted to $50.8 million, compared to inflows of $44.9 million in the second quarter of 2015.
• Total deposits, excluding brokered certificates of deposit (“CDs”) and government deposits, up $26.4 million to $6.7 billion as of September 30, 2015, an increase primarily related to commercial deposits.
• Brokered certificates of deposit decreased in the quarter by $62.7 million to $2.3 billion as of September 30, 2015.
• Government deposits increased by $248.2 million to $742.8 million as of September 30, 2015, reflecting increases in both our Puerto Rico and Virgin Islands region. As of September 30, 2015, the Corporation had government deposits of $524.5 million in Puerto Rico and $218.2 million in the Virgin Islands.
• Total loans increased in the quarter by $38.8 million to $9.3 billion as of September 30, 2015, primarily reflecting increases in the commercial loan portfolios.
• Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity), of $759.9 million for the third quarter of 2015, compared to $767.0 million for the second quarter of 2015.
• As of September 30, 2015, the Corporation has $371.1 million of direct exposure to loans and obligations of the Commonwealth of Puerto Rico central government and instrumentalities, of which $199.5 million, or 54%, represents exposure to municipalities.
• Total capital, common equity Tier 1 capital, Tier 1 capital, and leverage ratios calculated under the transition provisions of Basel III rules of 19.73%, 16.65%, 16.65%, and 12.41%, respectively, as of September 30, 2015. Tangible common equity ratio of 12.63% as of September 30, 2015.

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 third quarter of 2015, or $0.07 per diluted share, compared to a net loss of $34.1 million, or $0.16 per diluted share, for the second quarter of 2015 and net income of $23.2 million, or $0.11 per diluted share, for the third quarter of 2014.

For the third quarter of 2015, the pre-tax income was $19.2 million compared to a pre-tax loss of $43.9 million for the second quarter of 2015 ($20.2 million pre-tax income adjusted to exclude the significant items mentioned below) and pre-tax income of $23.3 million for the third quarter of 2014. As previously reported, the pre-tax loss for the second quarter of 2015 included a $48.7 million pre-tax loss on a bulk sale of assets, mostly comprised of non-performing and adversely classified commercial loans, including transaction expenses, a $12.9 million pre-tax other-than-temporary impairment (“OTTI”) on Puerto Rico Government securities, and pre-tax costs of $2.6 million related to the conversion of loan and deposit accounts acquired from Doral to the First Bank systems completed in the second quarter.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “This was a stable quarter of economic activity. We achieved improvement in our franchise metrics with slight growth in our loan and core deposit portfolios, as well as reduction of the non-performing portfolio. We generated $14.8 million of net income for the quarter, and $50.5 million of pre-tax pre-provision earnings which continue to support our growing capital base; tangible book value is now $7.50 per share. The bottom line results were impacted by macro-driven decisions related to government exposure, which increased provisioning needs.

Our loan portfolio grew by $39 million and total deposits, excluding brokered deposits, increased by $275 million. Excluding government, core deposits increased $26.4 million. Both Florida and the Eastern Caribbean contributed to loan portfolio growth. We made a concerted effort to reduce expenses this quarter, which declined to $93.3 million from higher levels in the second quarter. Our team is focused on improving core metrics while we continue to operate in a challenged environment. We remain vigilant on the Puerto Rico fiscal situation and potential short term events that could further impact our industry performance.”

This press release includes certain non-GAAP financial measures, including adjusted pre-tax income, adjusted non-interest income, adjusted non-interest expenses, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, certain capital ratios, and certain other financial measures that exclude the effect of the bulk sale of assets, the other-than-temporary impairment on Puerto Rico Government debt securities, and acquisition and conversion costs related to the Doral transaction, 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

Adjusted pre-tax, pre-provision income is a non-GAAP financial measure that management believes is useful in analyzing performance. This metric is earnings adjusted to exclude tax expense, the provision for loan and lease losses, gains or losses on sales of investment securities and impairments, and fair value adjustments on derivatives. 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 $50.5 million in the third quarter of 2015, up $2.8 million from the prior quarter:

The increase in adjusted pre-tax, pre-provision income from the 2015 second quarter primarily reflected:

• A $5.8 million decrease in non-interest expenses of $93.3 million for the third quarter of 2015, as compared to adjusted non-interest expenses, defined below, of $99.1 million for the second quarter of 2015. The decrease was mainly related to a $5.4 million reduction in professional service fees (excluding the professional service fees incurred in the second quarter related to the bulk sale of assets and conversion costs) reflecting, among other things, the impact in the previous quarter of interim servicing costs related to loans and deposit accounts acquired from Doral and reductions achieved in legal and consulting fees. See Non-Interest Expenses section below for additional information.
  
  Adjusted non-interest expenses in the second quarter of 2015 exclude certain costs that were considered non-recurring such as expenses and losses directly attributable to the bulk sale of assets and conversion costs related to the Doral transaction. See Basis of Presentation section below for a reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.

Partially offset by:

• A $1.7 million decrease in adjusted net interest income of $124.8 million, which excludes fair value adjustments on derivative instruments of $0.1 million, mainly driven by a decrease in interest income earned on the commercial and consumer loan portfolios. See Net Interest Income section below for additional information.
• A $1.3 million decrease in non-interest income of $18.8 million for the third quarter of 2015, as compared to adjusted non-interest income, defined below, of $20.1 million for the second quarter of 2015, mainly due to a $0.5 million decrease in revenues from the mortgage banking business and a $0.3 million reduction in insurance commissions income. See Non-Interest Income section below for additional information.
  
  Adjusted non-interest income in the second quarter of 2015 excludes the loss on a commercial mortgage loan held for sale included in the bulk sale of assets and the OTTI charge on Puerto Rico Government debt securities. See Basis of Presentation section below for a reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.

NET INTEREST INCOME

Net interest income, excluding fair value adjustments on derivatives (“valuations”) and the $2.5 million prepayment penalty collected on a commercial mortgage loan paid off in the fourth quarter of 2014, and net interest income on a tax-equivalent basis are non-GAAP measures. (See“Basis of Presentation – Net Interest Income, Excluding Valuations and Prepayment Penalty, 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 the aforementioned prepayment penalty, 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 the prepayment penalty, and on a tax-equivalent basis.

Net interest income amounted to $124.9 million, a decrease of $1.6 million when compared to the second quarter of 2015. Adjusted net interest income, excluding fair value adjustments on derivative instruments of $0.1 million, amounted to $124.8 million, a decrease of $1.7 million compared to the second quarter of 2015. The decrease in net interest income was mainly due to:

• A $0.8 million decrease in interest income on commercial and construction loans, primarily reflecting the recognition in the previous quarter of $0.5 million in income on a commercial loan paid-off and interest income of $0.4 million recorded in the previous quarter related to the credit facility of the Puerto Rico Electric Power Authority (“PREPA”). Since May 2015, all interest payments received on the PREPA credit facility have been applied to the principal balance.
• A $0.5 million decrease in interest income on consumer loans driven by a $36.1 million decrease in the average volume of loans, primarily auto loans.
• A $0.3 million decrease in interest income on U.S. agency mortgage-backed securities (“MBS”) driven by a $28.6 million decrease in the average volume of MBS.
• A $0.3 million decrease in interest income on residential mortgage loans, primarily due to lower collections on non-performing loans for which interest income is accounted for on a cash basis.

Partially offset by:

• A $0.3 million decrease in total interest expense primarily driven by: (i) a $0.2 million decrease in interest expense on repurchase agreements, mainly reflecting the full quarter impact of the interest income earned on a $200 million reverse repurchase agreement entered into in mid-April 2015 as part of an agreement with an existing counterparty that qualifies for offsetting accounting, and (ii) a $0.1 million decrease in interest expense on deposits mainly related to a $157.6 million decrease in the average balance of brokered CDs that was partially offset by a higher cost on brokered CDs issued during the third quarter of 2015.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses for the third quarter of 2015 was $31.2 million compared to $74.3 million for the second quarter of 2015. Excluding the $46.9 million charge recorded in the second quarter associated with the bulk sale of assets, the provision increased by $3.9 million driven by the following variances:

• An $8.2 million increase in the provision for consumer loans. The increase in the provision mainly reflects the impact in the previous quarter of two significant items: (i) loan loss recoveries of $2.7 million on the sale of certain auto and personal loans that had been fully charged-off in prior periods and (ii) a net release in the total consumer loans loss reserve of approximately $5.6 million in the second quarter, primarily related to lower loss severity rates in the observed periods and improvements in qualitative factors.

Partially offset by:

• A $2.9 million decrease in the provision for commercial and construction loans mainly reflecting the impact in the previous quarter of the $15.5 million charge related to the incorporation of the charge-offs from the bulk sale in the calculation of historical loss rates used to estimate the general reserve for non-impaired loans. This was partially offset by increased reserves related to the migration to adverse classification categories of the $130.1 million in commercial mortgage loans extended to the hotel industry in Puerto Rico guaranteed by the Puerto Rico Tourism Development Fund (the “TDF”) and, to a lesser extent, by a decrease in loan loss recoveries on construction loans in Florida.
• A $1.4 million decrease in the provision for residential mortgage loans driven by the impact in the previous quarter of the $3.2 million reserve established for purchased credit-impaired loans acquired from Doral in May 2014, partially offset by an increase in the loan loss reserve recorded in the third quarter for loans in late stages of delinquency.
  
  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 2015 amounted to $18.8 million, compared to $6.7 million for the second quarter of 2015. Excluding the $12.9 million OTTI charge on Puerto Rico Government debt securities in the second quarter of 2015 and the $0.6 million pre-tax loss on a commercial mortgage loan held for sale included in the bulk sale of assets, non-interest income decreased by $1.3 million. The decrease was primarily due to:

• A $0.5 million decrease in revenues from the mortgage banking business driven by $0.7 million of realized and unrealized losses on TBAs MBS forward contracts in the third quarter, partially offset by higher margins on mortgage loan sales. Loans sold and securitized in the secondary market to U.S. government-sponsored entities amounted to $117.0 million with a related gain of $3.7 million in the third quarter of 2015, compared to $121.2 million with a related gain of $3.4 million in the second quarter of 2015.
• A $0.3 million decrease in insurance commissions income, mainly commercial and auto insurance policies.
• A $0.3 million adverse variance related to the gain recorded in the previous quarter on the exchange of certain trust preferred securities.

NON-INTEREST EXPENSES

Non-interest expenses in the third quarter of 2015 amounted to $93.3 million, a decrease of $9.5 million from $102.8 million for the second quarter of 2015. Excluding non-recurring acquisition and conversion costs related to the Doral transaction of $2.6 million in the second quarter and $1.2 million of expenses and losses directly associated with the bulk sale transaction, non-interest expenses decreased by $5.8 million. The main drivers of the decrease were:

• A $5.4 million decrease in adjusted professional service fees due to, among other things, the impact in the previous quarter of two significant items: (i) $2.4 million in interim servicing costs related to loans and deposits acquired from Doral, as the conversion to FirstBank systems was completed two months into the second quarter, and (ii) $1.3 million in consulting and legal fees incurred in the second quarter for special projects as well as strategic, stress testing and capital planning matters. In addition, there was a decrease of $1.1 million in legal fees related to troubled loan resolution efforts and a $0.3 million decrease in collateral appraisals expense.
• A $0.6 million decrease in adjusted employees’ compensation and benefit expenses mainly due to a $0.3 million decrease in payroll taxes, as certain employees reached the maximum payroll tax limits, and a $0.3 million reduction in bonus accruals.
• A $0.3 million decrease in adjusted OREO losses driven by lower OREO-related operating expenses such as repairs and maintenance.

Partially offset by:

• A $0.4 million increase in adjusted business promotion expenses, primarily attributable to several marketing campaigns launched in the third quarter.
• A $0.3 million increase in debit card processing expenses primarily reflecting post-conversion costs related to accounts acquired from Doral.

INCOME TAXES

The Corporation recorded an income tax expense for the third quarter of 2015 of $4.5 million compared to an income tax benefit of $9.8 million for the second quarter of 2015. As of September 30, 2015, the Corporation had a net deferred tax asset of $311.4 million (net of a valuation allowance of $204.1 million, including a valuation allowance of $177.9 million against the deferred tax assets of the Corporation’s banking subsidiary, FirstBank).

CREDIT QUALITY

Non-Performing Assets

Variances in credit quality metrics:

• Total non-performing assets decreased by $27.3 million to $617.2 million as of September 30, 2015, compared to $644.4 million as of June 30, 2015. Total non-performing loans, including non-performing loans held for sale, decreased by $30.9 million, or 6%, from the second quarter of 2015. The decrease in non-performing assets was primarily attributable to the restoration to accrual status of a $24.5 million commercial mortgage facility after consideration of the borrower’s sustained historical repayment performance and credit evaluation.
• Inflows to non-performing loans held for investment were $50.8 million, an increase of $5.9 million compared to inflows of $44.9 million in the second quarter of 2015. The increase was primarily reflected in the commercial and industrial loan portfolio that showed inflows of $5.8 million in the third quarter of 2015, a $3.2 million increase compared to inflows of $2.6 million in the second quarter of 2015 and inflows of non-performing residential mortgage loans of $27.4 million in the third quarter of 2015, a $2.3 million increase compared to inflows of $25.1 million in the second quarter of 2015.
• Adversely classified commercial and construction loans held for investment increased by $159.2 million to $570.1 million as of September 30, 2015, driven by the migration of the $130.1 million exposure to commercial mortgage loans with a government guarantee. This exposure is in accrual status as of September 30, 2015.
• The OREO balance increased by $2.3 million, driven by additions of $16.8 million in the third quarter of 2015 (primarily residential mortgage loans), partially offset by sales of $8.7 million and adjustments to value of $5.8 million.
• Total troubled debt restructurings (“TDRs”) held for investment were $682.0 million as of September 30, 2015, up $47.2 million from June 30, 2015. During the third quarter of 2015, the Corporation changed its intent to sell a $40.0 million construction loan in the Virgin Islands upon the signing of a new agreement with the borrower. Accordingly, the loan was transferred back from held for sale to held for investment and maintained its classification as a TDR. Approximately $411.8 million of total TDRs held for investment were in accrual status as of September 30, 2015.

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 total loans held for investment was 2.46% as of September 30, 2015 compared to 2.40% as of June 30, 2015. The increase was primarily related to the increased migration of commercial loans to adverse classification categories. The ratio of the allowance to non-performing loans held for investment was 48.44% as of September 30, 2015 compared to 47.79% as of June 30, 2015.

The following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of September 30, 2015 and June 30, 2015 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 2015 were $23.7 million, or an annualized 1.02% of average loans, compared to $78.8 million, or an annualized 3.35% of average loans, in the second quarter of 2015. The bulk sale of assets added $61.4 million in net charge-offs in the second quarter of 2015. Excluding the impact of the bulk sale of assets, the net charge-offs for the third quarter of 2015 were $6.4 million higher than in the second quarter. The increase of $6.4 million was mainly related to:

• A $2.9 million increase in consumer loan net charge-offs, primarily related to the effect in the previous quarter of $2.7 million of loss recoveries on the sale of certain loans that had been fully charged-off in prior periods.
• A $1.8 million increase in commercial and construction loan net charge-offs, primarily related to the effect in the previous quarter of a $1.1 million loss recovery on a construction loan in Florida.
• A $1.6 million increase in residential mortgage loan net charge-offs, primarily related to the increased volume of residential mortgage foreclosures in the third quarter.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $12.8 billion as of September 30, 2015, up $242.2 million from June 30, 2015.

The increase was mainly due to:

• A $279.3 million increase in cash and cash equivalents primarily tied to the increase in government and non-brokered deposits.
• A $38.8 million increase in total loans primarily related to a $53.4 million increase in commercial and industrial loans in Florida, a $41.0 million increase in commercial and industrial loans in the Virgin Islands and a $44.4 million increase in total commercial mortgage loans that was driven by new loan originations in Puerto Rico. The aforementioned variances were partially offset by a $37.7 million decrease in consumer loans, primarily auto loans, and a $62.7 million decrease in commercial and industrial loans in Puerto Rico.
  
  Total loan originations, including refinancings, renewals, and draws from existing revolving and non-revolving commitments, amounted to approximately $759.9 million, compared to $767.0 million in the second quarter of 2015. These figures exclude the credit card utilization activity. The decrease was mainly due to an $18.3 million decrease in residential mortgage loan originations and a $38.3 million decrease in commercial and industrial loan originations. These variances were partially offset by an $18.6 million increase in commercial mortgage loan originations and a $36.7 million increase in loan originations in the Virgin Islands.

Partially offset by:

• A $57.6 million decrease in investment securities driven by U.S. agency MBS prepayments of $64.6 million and a $5.0 million U.S. agency debt obligation called prior to maturity, partially offset by a $12.6 million increase in the fair value of U.S. agency MBS.

Total liabilities were approximately $11.1 billion as of September 30, 2015, up $209.4 million from June 30, 2015.

The increase was mainly due to:

• A $248.2 million increase in government deposits, including increases of $197.6 million in Puerto Rico and $50.6 million in the Virgin Islands. The increase in Puerto Rico is primarily related to the deposit of funds by a government entity, which is expected to be temporary.

• A $26.4 million increase in deposits, excluding government deposits and brokered CDs, primarily commercial deposits in the Virgin Islands region.

Partially offset by:

• A $62.7 million decrease in brokered CDs.

Total stockholders’ equity amounted to $1.7 billion as of September 30, 2015, an increase of $32.7 million from June 30, 2015, mainly driven by:

• The net income of $14.8 million reported in the third quarter.
• An increase of $16.7 million in other comprehensive income mainly attributable to the $12.6 million increase in the fair value of U.S. agency MBS and a $4.3 million increase in the fair value of other U.S. agency debt obligations.

On January 1, 2015, the Basel III rules became effective, subject to on-going, multi-year transition provisions primarily related to regulatory deductions and adjustments impacting common equity tier 1 capital, tier 1 capital and total capital. The Corporation’s common equity tier 1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules as of September 30, 2015 (including the 2015 phase-in of regulatory capital transition provisions) were 16.65%, 16.65%, 19.73% and 12.41%, respectively, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 16.37%, 16.37%, 19.44%, and 11.94%, respectively, as of the end of the second quarter of 2015.

Meanwhile, the common equity tier 1 capital, tier 1 capital, total capital and leverage ratios as of September 30, 2015 of our banking subsidiary, FirstBank Puerto Rico, were 16.09%, 18.16%, 19.44%, and 13.54%, respectively, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 15.81%, 17.85%, 19.13% and 13.03%, respectively, as of the end of the prior quarter.

Tangible Common Equity

The Corporation’s tangible common equity ratio increased to 12.63% as of September 30, 2015 from 12.61% as of June 30, 2015.

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:

Exposure to Puerto Rico Government

As of September 30, 2015, the Corporation had $336.0 million of credit facilities, excluding investment securities, granted to the Puerto Rico Government, its municipalities and public corporations, of which $320.7 million was outstanding (book value of $318.4 million), compared to $326.7 million outstanding as of June 30, 2015. Approximately $199.5 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 $21.0 million consisted of loans to units of the central government, and approximately $100.3 million ($97.9 million book value) consisted of loans to public corporations, including the direct exposure to PREPA with a book value of $72.6 million as of September 30, 2015. In addition, the Corporation had $130.1 million outstanding in financings to the hotel industry in Puerto Rico guaranteed by the TDF as of September 30, 2015, down $0.9 million, compared to $131.0 million outstanding as of June 30, 2015. The TDF is a subsidiary of the Government Development Bank for Puerto Rico.

The Corporation held $52.7 million of obligations of the Puerto Rico government as part of its available-for-sale investment securities portfolio, net of the $12.9 million other-than-temporary credit impairment recorded in the second quarter of 2015, carried on its books at a fair value of $34.1 million as of September 30, 2015. The fair value of the Puerto Rico government debt obligations held by the Corporation decreased by $0.4 million during the third quarter of 2015.

As of September 30, 2015, the Corporation had $524.5 million of public sector deposits in Puerto Rico, compared to $326.9 million as of June 30, 2015. Approximately 65% is from municipalities and municipal agencies in Puerto Rico and 35% is from public corporations and the central government and agencies in Puerto Rico.

Conference Call / Webcast Information

First BanCorp’s senior management will host an earnings conference call and live webcast on Monday, October 26, 2015, 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.1firstbank.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.1firstbank.com, until October 26, 2016. A telephone replay will be available one hour after the end of the conference call through November 26, 2015 at (877) 344-7529 or (412) 317-0088 for international callers. The replay access code is 10074810.

Safe Harbor

This press release may contain “forward-looking statements” concerning the Corporation’s future economic performance. The words or phrases “expect,” “anticipate,” “intend,” “look forward,” “should,” “would,” “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 will be able to continue 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”) that, among other things, requires the Corporation to serve as a source of strength to FirstBank and that, except with the consent generally of the New York Fed and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) prohibits the Corporation from paying dividends to stockholders or receiving dividends from FirstBank, making payments on trust preferred securities or subordinated debt and incurring, increasing or guaranteeing debt or repurchasing any capital securities; the ability of the Puerto Rico government or any of its public corporations or other instrumentalities to repay its debt obligations, including the effect of the recent payment default of a government public corporation, 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; a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico; uncertainty as to the availability of certain funding sources, such as brokered CDs; the Corporation’s reliance on brokered CDs to fund operations and provide liquidity; 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 need to receive approval from the New York Fed and 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 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 for loan and lease losses and may subject the Corporation to further risk from loan defaults and foreclosures; the ability of FirstBank to realize the benefits of its deferred tax assets subject to the remaining valuation allowance; additional 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 have reduced interest margins and affected funding sources, and has affected demand for all of the Corporation’s products and services, reduced the Corporation’s revenues and earnings, and the value of the Corporation’s assets, and may once again have these effects; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio is determined to be other-than-temporary, including additional impairments on the Puerto Rico government’s obligations; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S., 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 and the Puerto Rico and other governments, 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 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, including the acquisition of loans and branches of Doral as well as the assumption of deposits at the branches during the first quarter of 2015; a need to recognize 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.

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 and losses on the sale of investment securities and OTTI charges on investment securities, fair value adjustments on derivatives 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 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 Prepayment Penalty, 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 a $2.5 million prepayment penalty collected on a commercial mortgage loan paid off in the fourth quarter of 2014, and on a tax-equivalent basis. The presentation of net interest income excluding valuations and the $2.5 million prepayment penalty collected 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 the results of peers.

Financial measures adjusted to exclude the effect of the bulk sale of assets, the OTTI charge on Puerto Rico Government debt securities and certain non-recurring expenses related to the acquisition of loans and assumption of deposits from Doral.

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation provides additional measures of adjusted net charge-offs, adjusted non-interest expenses, adjusted non-interest income, and adjusted pre-tax income. Adjusted non-interest expenses exclude certain acquisition and conversion costs incurred in the Doral transaction that are considered non-recurring in nature and expenses and losses directly associated with the bulk sale of assets. Adjusted non-interest income excludes the $12.9 million OTTI charge on Puerto Rico Government debt securities recorded in the second quarter of 2015 and the $0.6 million loss on a commercial mortgage loan held for sale included as part of the bulk sale of assets in the second quarter of 2015. Adjusted pre-tax income excludes the effect of all the aforementioned non-recurring items. 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 measures to the corresponding measures calculated and presented in accordance with GAAP.